Tangoing in Tokyo

Asian markets follow Wall Street gains

Asian markets have started the week on a positive note, as a disappointing US Non-Farm Payrolls on Friday couldn’t damp the stimulus-infused enthusiasm of Wall Street. The news front was relatively quiet over the weekend as far as market impact goes, leaving the road clear for the “buy everything” business as usual crowds. The Nikkei 225 has been a star performer this morning, rising over 2.0% as investors piled in after it took out 29,000 after the open this morning, levels not seen since 1990. It remains some distance from its all-time highs around 39,000 seen in January 1989.

Chinese has released new anti-monopoly rules today, aimed squarely at China big-tech companies. Markets seem to have priced this in for now though, with mainland markets slightly higher, and large Hong Kong-listed China technology companies outperforming there this morning. China’s Inflation and Trade Balance data are released on Wednesday and provide the region’s data highlight for the week. Today’s calendar is empty save for Malaysian Industrial Production, which will be low impact.

Towards the end of the week, turnover in Asian markets will plummet, with most of the region starting Lunar New Year holidays. China will be off for one week from Thursday with Taiwan beginning the day before. South Korea, Thailand, Vietnam and Singapore will follow suit with Japan also away on Thursday. India is also out on Friday next Monday; US markets will also be closed for President’s Day.

The heavy holiday schedule has hollowed out the data calendar internationally, with US CPI on Wednesday the only relief to the US stimulus story. US Core CPI is expected to print 0.20% MoM, and 1.60% YoY. Despite the Non-Farm Payrolls data being unexpectedly soft, (mostly caused by Californian shutdowns and data collection timing I suspect), the US stimulus passage and falling Covid-19 caseload may mean the January data is the nadir.

Although Friday’s data torpedoed the US dollar squeeze plan, an above-market print for US CPI could see it return. The yield curve steepened on Friday, despite the soft data, and may do so again in the above scenario. We could yet see the return of the US dollar short-squeeze after that, particularly if the 30-year climbs over 2.0%. Those pimped up equity valuations may look less attractive to pension fund managers in this scenario.

The Non-Farm Payrolls gave the under-pressure euro, Australian and Canadian dollars and gold some much need relief on Friday. Let’s see if that lasts. Until then or not, it’s sit back, relax, and ride the US stimulus train, first stop being economic nirvana and the cure to all the world’s problems.

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