1H January Global Market Recap
1st January 2021 – 15th January 2021
President-elect Joe Biden proposed 1.9 trillion stimulus packages on 14th January, including $1,400 direct payment to individuals as well as a $400 weekly unemployment insurance payment till September. Latest data from both US consumer sector and labour market are showing weakness of the economic recovery. US retail sales in December declined 0.7% from a month earlier, marking the third consecutive month of declines and below expectations. Consumer sentiment slips on the backdrop of surging virus cases and deaths, as well as Trump’s impeachment after being accused of inciting insurrection. Non-farm payroll contracted 140,000 in December after growing for 7 straight months, well below expectation.
China’s headline CPI rose 0.2% in December from the same month last year, after posting a negative growth for the first time in 11 year in November. The inflation was mainly led by food prices, which increased by 1.2%, as consumer demand increased ahead of Chinese New Year. China’s exports increased 18.1% in December on a year over year basis, having been growing for 7 straight months and making China the only one major economy worldwide that has achieved growth in goods trade in 2020.
Major stock indexes except for Malaysia KL Composite index registered gains in the first half of January, with The Korea Composite Stock Price Index (+9.6%), Ho Chi Minh Stock Index(+8.2%) and Jakarta Composite Index(+7.5%) being the top gainers.
The U.S. stocks reached record highs in the first week of January on the hopes that new stimulus packages will revive growth and boost corporate earnings. While all three indexes registered sharpest weekly drops since the end of October amid weak economic data and slower than expected vaccines rollout. Chinese mainland investors are showing unprecedented enthusiastic in Hong Kong equity market, buying a net of $20 billion of Hong Kong shares in the first half of January, almost one third of what they have been purchased in 2020.
U.S. treasury yields rose in the first half of January as the US government bond selloff continues with the market fearing that the incoming Biden led administration and a Democratic controlled Congress could further ease fiscal policy. Excess liquidity has pushed China’s interbank borrowing cost to an all-time low with the 7D, 1M and 3M rates dropping significantly in the first half of the month. From August to December 2020, the central bank injected a net amount of 1.6 trillion yuan into the financial system. Performance of other ten-year government bond yields were mixed.
Overall, the credit market remained relatively stable and market sentiments remains positive as vaccination across countries continues. Across the board, most major CDS indices rose in January as markets anticipates the upcoming US$1.9 trillion stimulus package by the new Biden administration. Major OAS indexes fell slightly while the LIBOR-OIS spread continue to remain stable.
The dollar index rose in January as the dollar strengthens against other international currencies supported by rising Treasury yields. The Chinese Yuan strengthened against the dollar with onshore and offshore currencies appreciating by 0.7% and 0.3% respectively. Chinese Yuan appreciated against the dollar for the past eight months and hit its strongest level since June 2018 due to the strong recovery of the Chinese economy and slowdown in the US.
With the start of the vaccination across some countries and the gradual decline in US shale production and inventories, Brent and WTI crude oil prices continue to rise in January, increasing by 6.4% and 7.9% respectively as the market expects demand to be back quicker on hopes of a faster pace of economic recovery. In early January, OPEC and its allies have extended their oil production cut through to mid-2021 coupled with Saudi Arabia’s agreement to remove 1 million barrels of oil per day from the market help spur the rise in oil prices as well. US Gasoline price rose by 8.4% on the back of optimism that demand for oil will increase with the ongoing vaccination in place. Meanwhile, Bitcoin price hit its all-time high on 8th January at USD40,675 and almost quadrupled since the end of September 2020. One reason for the massive price rise is due to the huge purchases from large-scale institutions.