Market Talk – January 22, 2020

ASIA:

Consumption, healthcare, and technology are three sector key sectors for investing in China, said Chairman and CEO of CITIC Capitals on Tuesday at the World Economic Forum in Davos, Switzerland. Chinese consumption is growing faster than GDP, making the sector a bright spot for investing. Zhang said that healthcare is an important sector as China is aging rapidly and there is a robust demand for good healthcare services. Another potential area for investment is technology services due to the potential decoupling with the US in that area, Zhang said. Beijing has been managing a transition of its economy from an export-driven manufacturing giant to one lead by domestic consumption.

During his recent visit to India, Amazon CEO Jeff Bezos announced a $1 billion investment to digitize small and medium businesses in India, which is expected to create 25k jobs. But India’s commerce minister’s recent remark that Bezos is not doing any “great favor” to India by upping investments made for “poor optics” at a time of economic slowdown, especially when the Modi government wants foreign firms to Invest in India, Financial Times South Asia Bureau Chief Amy Kamzin said in a report. Kamzin further critiqued New Delhi’s “presumption” that global firms had no choice but to invest here, but cited FDI data to show that India still lags way behind China.

At the World Economic Forum (WEF) summit in Davos, President Donald Trump again offered “help” to resolve the longstanding dispute between India and Pakistan as he met Pakistan’s Prime Minister Imran Khan on the sidelines of the WEF. Trump told Khan that he would speak to Prime Minister Narendra Modi about the ongoing Kashmir issue. The US president is expected to visit India in the coming weeks, marking his first visit after taking up his post in the White House. President Trump has repeatedly offered to mediate following India’s August 5 decision to revoke the special status to Jammu and Kashmir and bifurcate the state into two union territories. The move evoked strong reactions from Pakistan, which has been trying to internationalize the Kashmir issue.

A recent report published by Nikkei Asian Review pointed out that Singapore’s “perfect economy” may be coming apart. According to the government’s latest economic survey, a quarter of a million people are in functional poverty and the bottom 20% of Singaporean households have an average monthly shortfall of S$335 between their incomes and outgoings. Living costs have risen. Water bills are up 30% since 2017; medical costs have increased by 10% in just over five years, an acute problem in a population that is aging rapidly. Technological disruption is breaking the link between economic growth and earnings. Growth has slowed to its lowest level since the 2009 financial crisis tipped the island into recession. Together, these have massed into an unprecedented challenge for the People’s Action Party, which has held power in Singapore for more than half a century by delivering growth and prosperity. An election is looming, and there are no easy answers.

The major Asian stock markets had a mixed day today:

  • Shanghai increased 8.61 points or 0.28% to 3,060.75
  • Kospi increased 27.56 points or 1.23% to 2,267.25
  • ASX 200 increased 66.40 points or 0.94% to 7,132.70
  • NIKKEI 225 increased 166.79 points or 0.70% to 24,031.35
  • Hang Seng increased 355.71 points or 1.27% to 28,341.04
  • SENSEX decreased 208.43 points or -0.50% to 41,115.38

The major Asian currency markets had a mixed day today:

  • AUDUSD decreased 0.0005 or 0.07% to 0.6842
  • NZDUSD increased 0.0001 or 0.01% to 0.6596
  • USDJPY decreased 0.0440 or 0.04% to 109.8660
  • USDCNY increased 0.0001 or 0.00% to 6.9094

Precious Metals:

  • Gold increased 2.15 USD/t oz. or 0.14% to 1,555.52
  • Silver increased 0.0785 USD/t. oz or 0.44%% to 17.8748

Some economic news from last night:

South Korea:

GDP (YoY) (Q4) increased from 2.0% to 2.2%

GDP (QoQ) (Q4) increased from 0.4% to 1.2%

Australia:

Westpac Consumer Sentiment (Jan) increased from -1.9% to -1.8%

EUROPE/EMEA:

US President Trump spoke at the WEF in Davos today touching on many points, but namely at the US’ trading agreements with Europe. He was very critical of Europe’s methods with trade barriers and tariffs that are making business with the US “impossible.” He concluded that “they are frankly more difficult to do business with than China.” Trump also said a big deal will have to be agreed on very soon or else there will be more tariffs on the European auto industry.

According to reports, the EU is planning to offer the UK a worse trade deal than other trading partners such as Canada and Japan. Later in the evening, UK PM Boris Johnson responded, “I do not think the EU will offer us worse terms than other trading partners,” adding that he will maintain high standards when dealing with the EU. Meanwhile, the Withdrawal Agreement has passed through the parliament today and pushes forward for the UK to leave the EU on the 31st of January. The last step is royal assent.

Head of the EU commission Ursula von der leyen addressed Davos stating that the whole EU economy will shift towards a sustainable economy. By 2050, the EU will be the first carbon neutral continent. The EU has pledged a budget of 1 trillion euros to push the economy to sustainability.

Relations between the US and UK are not as straight forward as one would imagine with Mr Mnuchin criticizing the digital tax proposed by the UK to add to US companies. “If people just arbitrarily want to put taxes on our digital companies, we will consider putting taxes arbitrarily on car companies,” he stated.

An Iranian commander who headed local forces and was affiliated with the recently killed general was gunned down in front of his home by two masked gunmen. The case is currently under investigation.

The major Europe stock markets had a negative day today:

  • CAC 40 decreased 35.01 points or -0.58% to 6,010.98
  • FTSE 100 decreased 38.78 points, or -0.51% to 7,571.92
  • DAX 30 decreased 40.12 points or -0.30% to 13,515.75

The major Europe currency markets had a mixed day today:

  • EURUSD increased 0.0008 or 0.07% to 1.1093
  • GBPUSD increased 0.0090 or 0.69% to 1.3135
  • USDCHF decreased 0.00071 or -0.07% to 0.96799

Some economic news from Europe today:

France:

French Business Survey (Jan) increased from 98 to 100

Italy:

Italian Industrial New Orders (MoM) (Nov) decreased from 0.6% to -0.3%

Italian Industrial New Orders (YoY) (Nov) decreased from -1.5% to -4.3%

Italian Industrial Sales (MoM) (Nov) decreased from 0.60% to 0.00%

Italian Industrial Sales (YoY) (Nov) increased from -0.20% to 0.10%

UK:

Public Sector Net Borrowing (Dec) decreased from 4.20B to 4.04B

Public Sector Net Cash Requirement (Dec) increased from 9.515B to 16.596B

CBI Industrial Trends Orders (Jan) increased from -28 to -22

US/AMERICAS:

The annual World Economic Forum (WEF) concluded this Wednesday with the focus turning to US-EU relations. “I wanted to do China first. I wanted to do Mexico and Canada first. But now that we’re all done – and now what we do is we are going to do Europe,” President Trump stated after stating that the European Union has been a difficult trading partner. The president stated that he will implement tariffs on the EU and member states if they are unable to negotiate trading deals.

Treasury Secretary Mnuchin corroborated the Trump administration’s tariff-forward policy on Tuesday after telling reporters at the Wall Street Journal that the US will implement tariffs on the UK and Italy if they impose a digital tax. French President Macron agreed to hold off on the digital tax earlier in the week, stating that France and the US will deliberate on a plan after the year ends.

New Boeing CEO Dave Calhoun is attempting to ease concerns over the still grounded 737 MAX aircraft. Boeing announced yesterday that it does not expect the Federal Aviation Administration (FAA) to reinstate the plane’s usage until mid-year. Calhoun announced this Wednesday that he expects production to continue months before the FAA signs their approval. More importantly to investors, Calhoun confirmed that Boeing will continue to pay its dividend. Boeing’s stock fell by 1.39% this Wednesday.

Huawei CFO Meng Wanzhou’s trial continued this Wednesday in Vancouver. Yesterday, Wanzhou’s defense attorneys claimed that US-imposed sanctions on Iran were at the center of the case rather than their client’s wrongdoing. Today, Canadian prosecutors stated that fraud, illegal in both the US and Canada, is at the center of the case. “The fact that Canada may have a different sanctions against Iran than the U.S. should not distract the court from the necessary inquiry into the essence of the conduct for double criminality purposes. Deceit and risk of loss are at the heart of the conduct,” Canadian prosecutors pleaded with the judge.

US Market Closings:

  • The Dow declined 9.77 points or -0.03% to 29,186.27
  • S&P 500 advanced 0.96 of a point or 0.03% to 3,321.75
  • Nasdaq advanced 12.96 points or 0.14% to 9,383.77
  • Russell 2000 declined 1.44 points or 0.09% to 1,684.46

Canada Market Closings:

  • TSX Composite advanced 27.58 points or 0.16% to 17,599.86
  • TSX 60 advanced 2.27 points or 0.22% to 1,049.41

Brazil Market Closing:

  • Bovespa advanced 1,365.32 points or 1.17% to 118,391.36

ENERGY:

Leaders are expected to discuss Iran at the WEF and outcomes could affect the crude price. Also, investors are awaiting the EIA report, and analysts are expecting a mild draw of 0.1 million barrels of oil.

The oil markets had a negative day today:

  • Crude Oil decreased 1.7368 USD/BBL or -2.98% to 56.6583
  • Brent decreased 1.4958 USD/BBL or -2.32% to 63.0841
  • Natural gas decreased 0.005 USD/MMBtu or -0.26% to 1.9085
  • Gasoline decreased 0.0599USD/GAL or -3.62% to 1.5916
  • Heating oil decreased 0.0297 USD/GAL or -1.62% to 1.8084
  • Top commodity gainers: Cotton (2.82%), Palladium (2.70%),Palm Oil (2.20%), and Platinum (1.35%)
  • Top commodity losers: Gasoline (-3.62%), Crude Oil (-2.98%), Brent (-2.32%), and Bitumen(-1.70%)

The above data was collected around 16.10 am EST on Wednesday.

BONDS:

Japan 0.00%(+1bp), US 2’s 1.53% (-0bps), US 10’s 1.77%(-0bps); US 30’s 2.22%(-1bps), Bunds -0.26% (+2bp), France -0.01% (-2bp), Italy 1.34% (-2bp), Turkey 10.45% (-24bp), Greece 1.37% (-65bp), Portugal 0.44% (+2bp) Spain 0.41% (-1bp) and UK Gilts 0.63% (+0bp).