The Catch Up
• Asian shares continued their rise this morning, with the CSI300 reaching a 52-week high, as hopes for the $1.9 trillion US fiscal plan and a drop in US new Covid-19 cases to levels last seen in early December, along with an overall downward trend, outweighed concerns over rising coronavirus cases in Europe and delays in vaccine supplies.
• Markets were particularly affected by traders believing that the Covid-19 vaccines will reduce infection rates, as the case study of Israel has shown. In addition, expectations of a stronger US economic recovery under Joe Biden are also responsible for the recent market highs.
• Early this morning, other than the CSI300 rising to a 52-week high, all other indices were also in the green. Gains were led by the Hang Seng and the KOSPI which rose by 2.18% and 2.03% respectively, while the ASX and the Nikkei were also up by 0.3% and 0.67%. Overall, Asian markets are up by 8.5% in January, marking their third consecutive month of increases.
• At the same time, western index futures were also on the rise as the US500 was up 0.43% and the DAX rose by 0.41%.
• A question which still lingers though rests in two main pillars: first, investors remain wary about the high valuations observed in the markets, while second, the efficiency of the vaccines is also questioned.
• Perhaps ironically, analysts said US stock markets looked overvalued though they still remained bullish, given that they believe that only a catalyst event, such as an economic downturn or a Fed tightening would push the markets down. On the other hand, the first is not unlikely given the rise in Covid-19 cases.
• Goldman Sachs suggest that high-multiple stocks "appear frothy" while the SPAC boom appears unsustainable. At the same time, aggregate indices are trading at below-average valuations after taking into account Treasury yields, corporate credit, and cash. A similar conviction of stocks appearing "increasingly frothy" was also expressed by Citigroup analysts, even though they also suggested that valuations still lag previous mega-bubble periods.
• At the same time, while Australian authorities have approved the Pfizer vaccine, they also warned that AstraZeneca's production problems will suggest that the country may need to distribute a locally manufactured one.
• Still, the spotlight will be on Washington this week as the Biden administration will need to address Republican concerns that the $1.9 trillion pandemic relief proposal is too expensive. At the same time, infections remain at more than 175K per day, with millions of people out of work.
• While the forecast was for life to return to normal in 2021, this is likely to happen by the end of the year and not sooner. As such, corporate earnings will return to 2019 levels only by then, as the high global infections, new variants of the virus, tightening social distancing restrictions, and delays in vaccine rollouts in some places, all increase the near-term growth risks.
• Across the world, Covid-19 cases are inching towards 100 million with more than 2 million dead, as Asian countries re-impose restrictions. Hong Kong locked down an area of the Kowloon peninsula on Saturday, the first such measure the city has taken since the pandemic began. In addition, reports that the new UK variant was not only highly infectious but perhaps more deadly than the original strain also added to worries.
• In the EU, political leaders expressed widespread dismay over a hold-up by AstraZeneca and Pfizer in delivering promised doses, with Italy's prime minister lashing out at the vaccine suppliers, saying delays amounted to a serious breach of contractual obligations.
• At the same time, UK Prime Minister Boris Johnson said on Friday that the B117 variant of Covid-19 could be 30% more deadly, adding that stricter travel curbs and continued lockdown measures while the infection rate remains “forbiddingly high” could be possible.
• At the same time, EU economic activity shrank noticeably in January, with manufacturing and service PMIs dropping at below-50 levels.
• In currencies, major pairs were trapped in a tight range as markets awaited a US Federal Reserve meeting on Wednesday, with the greenback being slightly down.
• The USD lost ground against the Aussie, dropping by 0.3%, while it was stable against the Yen. At the same time, Sterling moved higher as UK data showed that retail sales were up in December.
• Despite the deterioration in economic activity, the Euro was still flat against the Dollar, at $1.2169.
Oil & Gold
• In commodities, oil prices fell for a second straight session, with Brent down 12 cents at $55.38 per barrel and WTI dropping to $52.24.