Markets this week: Upbeat US, China economic data

Economic events

Financial markets will trade with a firm bias after data published on Friday showed housing starts jumped in December to a 13-year high in the world’s largest economy, which came on the heels of encouraging data from the world’s second-largest economy,” said Capital Economics in a report after the US housing data were released. “The jump in housing starts in December was probably also boosted by the unseasonably mild temperatures last month, but it still illustrates that residential investment has continued to rebound.”

Earlier, China released crude oil production data which showed output of 190 million tons in 2019, an increase of 0.8% over the previous year, reversing the continuous decline since 2016. Growth data published for the fourth quarter on Friday showed the economy had expanded by the same rate as in the previous quarter with December statistics showing economic activities – including retail sales, industrial production and fixed-asset investment – had bottomed out.

Still, analysts are cautious on issues like the property sector, worsening fiscal conditions and limited policy space as posing headwinds. “The stabilization in Q4 GDP and improving December activity have strengthened our confidence in near-term recovery in China’s growth momentum. We believe the growth impetus will mainly come from infrastructure investment, a robust housing market amid policy fine-tuning, and improving manufacturing,” said Barclays analysts in a note.

Market attention will be focused on the World Economic Forum annual meeting which takes place January 21-24 in Davos-Klosters, Switzerland. This year the meeting of political and business leaders will focus on seven major themes including public health, environment, fairer economies, better business and technology for good.

Also this week, the release of flash January PMI will provide important direction on the growth of major economies, including Japan and Australia, at the start of the year after December surveys showed a brightening economic trend, IHS Markit said in a report.

In Asia, trade data out of Thailand and Taiwan, plus Singapore’s industrial output will unveil regional trade conditions after easing of US-China trade tensions. South Korea is expected to report GDP slowed to an annual rate of 0.9% in the fourth quarter, down notably from 2% in the third quarter, thanks to export declines. In contrast, the Philippines’ economic expansion is expected to have accelerated to an annual rate of 6.3% on the back of increased public spending, according to IHS Markit’s estimates.

Central bank decisions from Japan, Indonesia and Malaysia are due in the week. “While no policy changes are expected in Japan and Indonesia, there are some expectations of an ‘insurance’ rate cut in Malaysia amid rising external headwinds,” IHS Markit economists said.

Fund flow

Fixed income inflow momentum continues in 2020 after last year’s record volume, said Bank of America analysts in a report which stated that $11 billion of inflows were recorded in the first two weeks of January, driven by strong inflows into IG and EM debt funds. “The reach for quality yield continues for another year. An improving macro backdrop is supporting risk-sentiment, with investors also adding high yield risk,” the note said.

Large inflows into High-grade funds last week was the fourth in a row and the strongest start of the year for IG inflows since 2012. High yield fund inflows slowed last week with Global, US, and Europe-focused funds all registering inflows, with the latter outperforming. But government bond funds recorded a small outflow, the first in five weeks. Overall, Fixed income funds recorded the eighth week in a row of inflows.

Companies in focus

China Life Insurance said its profit for 2019 would rise by between 400% and 420%, driven by investment returns and tax savings. China’s life insurance business is expected to gain from global participation after Beijing removed foreign ownership limits as international companies bring skill sets into what is estimated to become the world’s biggest insurance market by 2030, catering to a rapidly aging population. The China Banking and Insurance Regulatory Commission has allowed foreign investors to raise their stakes in life insurance companies to 100% from January 1, 2020, from the previous ceiling of 51%.

Value Partners, one of Asia’s largest investment managers, said its assets under management shrank by $1.7 billion to $15 billion as a result of outflows. Investment managers face challenges like signs of strain in areas like the talent pool, the capacity of regulators and the cost of doing business, driven primarily by real estate prices – office rents in Hong Kong’s prime business districts are among the highest in the world – and compensation, according to KPMG in its outlook for the industry in 2020. “The exclusivity of the access Hong Kong enjoys to Mainland China may be tempered somewhat in future, and conscious of the city’s success, other jurisdictions from Shanghai to Singapore are working to emulate it by grooming their own financial hubs – though they have cost and capacity issues of their own.”

Chinese steelmaker Angang Steel said its profits for 2019 would decline by 80% from a year ago, as a slowing economy depressed volume of offtake as well as prices of the commodity. The rapid growth in steel production in 2019 has put question marks around China’s efforts to cut overcapacity. Demand for steel and iron ore is expected to slip in 2020, a report by the China Metallurgical Industry Planning and Research Institute said last month.

Bond markets have made a brisk start even after last week’s heavy supplies. Indonesian issuers Bumi Serpong Damai, Chinese borrowers Dalian Wanda, Dafa Properties, Dexin China, CPI Properties Risesun Real Estate, Shui On Company are in the market with dollar bond issues as is a green bond offering from Indian company Renew Power.