Markets in Record after the Breather

The Catch Up

• Markets in Asia are back in record territory today, driven by improved earnings performance, hopes that the US fiscal stimulus will be as large as expected, and progress along the pandemic front, with cases in the US dropping below 100,000 for the first time since November. At the same time, the ongoing vaccination schedule creates optimism about a fast global recovery.

• Gains in Asia were led by the Chinese bourses, with the CSI300 rising by 1.8% and the Hang Seng moving 1.42% higher. The two were driven mostly by improved factory prices, which have risen for the first time in a year, as a result of increasing demand. The CSI300 hit a 13-year high on the last trading day before the week-long Lunar New Year holidays.

• Elsewhere in Asia, markets were also in the green: the KOSPI rose by 0.76% while the ASX moved 0.59% higher. The Nikkei was just 0.1% up, after hitting a 30-year high yesterday.

• In the futures markets, the US500 was up 0.39% and the DAX rose by 0.29%.

• The Asian session was aided by improved US firm earnings, as Lyft and Twitter announced better than expected results, moving 11.8% and 3.5% higher.

• Analysts note that investors are raising weightings on stocks as the Biden administration looks set to spend pretty much close $1.9 trillion on stimulus, despite the opposition from Republicans. Still, Democrats approved a budget outline last week that will allow them to muscle the stimulus through in the coming weeks without Republican support.

• The US stock and bond markets are reflective of this, with the S&P up 5.3% for the month while benchmark 10-year Treasury yields were last at 1.16%, close to the 1.20% 10.5-month high reached on Monday.

• Inflation is other big thing that has been driving investors, with expectations suggesting that it will rise to 2.20%, the highest since 2014, as the Fed has said it would tolerate inflation rising beyond 2% temporarily. Still, US inflation data, due later on Wednesday, is expected to show an annual rise of 1.5% in core CPI.


Currencies

• In the currency markets, the US Dollar traded near two-week lows, falling by 0.64% yesterday, the biggest drop in three months.

• On the other hand, the Euro was last at $1.2119, extending its rebound from a two-month low of $1.1952 touched on Friday. Similarly, Sterling held firm at $1.3822, hitting its highest level since April 2018.

• Even the Yuan continues to gain at the Dollar's expense, with the offshore Chinese yuan standing at 6.4185, close to its 2.5-year high of 6.4119 reached on January 5. The Aussie and the Kiwi were little changed.

• In the crypto markets, Bitcoin, which gained 19.5% on Monday, stood little changed at $46,292, not far off its record high of $48,216 set on Tuesday. On the other hand, Ethereum, the second-most-popular cryptocurrency, hit a record high of $1,826.


Oil & Gold

• Brent oil was up by 0.2%, breaking through the $61 per barrel level and trading close to a 13-month high, following a seven-day winning streak as investors are betting that fuel demand will rise while OPEC and allied producers keep a lid on supply. At the same time, WTI was up marginally to $58.28 per barrel.

• The markets were helped by falling crude inventories, which dropped by 3.5 million barrels, even though they continue to be relatively high. Analysts note that with Brent over $60 investors are feeling more bullish.

• Gold futures rose by 0.3% to $1,843 per ounce, after rising to a one-week high on Tuesday, as stimulus measures continue to give the metal a boost.


The Look-Out

• US CPI is forecast to have increased by 1.5% y/y, higher than the 1.4% increase seen in the previous reading but still lower than the 2% target.

• Similarly, German CPI is forecast to have increased by 1.4%.

• Fed Chairman Jerome Powell is expected to speak at a webinar today, with traders always hoping for guidance with regards to the economy.