BYD revealed its latest electric vehicle at the Shanghai Motor Show in April 2019. Photo: The Yomiuri Shimbun / AFP

Trade of the Day: Stocks rally as risk appetite stays robust; bond yields rise and gold weak; oil gains.

Quote of the Day: “It is possible that China may look to “punish” Taiwan for re-electing the anti-China DPP by making it more difficult for Taiwan to negotiate free-trade deals with other countries. It could also decide to introduce more draconian restrictions on the number of Chinese tourists that are allowed to visit Taiwan, which would have an even more severe impact on the economy. Finally, China could behave more belligerently, particularly if its economy slowed further. China’s decision to send its new aircraft carrier, the Shandong, through the Taiwan Straits over Christmas, is a reminder that military conflict cannot be ruled out,” Gareth Leather, economist at Capital Economics, said in a note following the weekend victory.

Stock of the day: China’s electric car maker BYD rose 15.9% after Miao Wei, the Minister of Industry and Information Technology in China, said the government would not cut subsidies for new energy vehicles. Nasdaq listed Tesla, which began operations at its China factory this month, and NYSE listed Nio Inc. are also expected to benefit from this.

Number of the Day: 7.35% – India’s inflation for December blew past all estimates and breached the central bank’s tolerance limit of 6%, data published on Monday showed. “With headline inflation reaching above the RBI’s legislated zone, and January CPI on track to be close to 7.5% (likely peak in the cycle), we see little room for the MPC to cut rates in the near term,” said Barclays in a report.

Tip of the Day: DBS Bank published its 10-theme investment macro strategy for 2020 on Monday:

Theme 1: With no major economic catalysts in the pipeline, investors would look for value in emerging markets, reducing DM exposure

Theme 2: Watch out for a US 2Y/10Y steepening trade once spreads compress to 15bps

Theme 3: Short-term Indian government bonds look cheap

Theme 4: Ample liquidity to support SGD rates

Theme 5: USD sell-off to lose steam

Theme 6: CNY rally to phase out

Theme 7: Holding back SGD optimism

Theme 8: Stretch for the duration in Chinese investment-grade credit

Theme 9: Oil downside limited at US$65

Theme 10: Set for growth in gold investment.

World markets gained ahead of this week’s phase one trade agreement between the world’s two largest economies which has been blamed in part for China’s slowing exports and following which, according to National Bureau of Economic Research, tariffs continue to be almost entirely borne by US firms and consumers.

The MSCI All country world index rose 1.1% after Asia and Europe stock markets posted broad gains. Futures on US indexes were up 0.4%, indicating a strong start when Wall Street opens for trading.

“The first phase agreement means we have a window of a year or 18 months,” said  Barry Naughton, Professor at the University of California told a UBS conference organized in Shanghai. “Things should calm down for a while. We can take a step back. All those risks are there… no question about it. But a whole lot of other things are going on.”

Later in the week, markets will take their cues from China’s announcement of its trade data on Tuesday and Q4 2019 GDP statistics on Friday while Fed policymakers will also be monitored ahead of the January 29 FOMC meetings.

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