The consolidation continues

Asian markets take a holiday break

US inflation data surprised markets overnight (including the author), by printing lower than expected. That took the wind out of the sails of the buy-everything trade, leading to another day of consolidation across asset classes. In the bigger picture, that is no bad thing, given the strength of the one-way price action seen over the past week in various corners of the markets.

The same state of affairs is likely to persist in Asia today with the Lunar New Year holidays moving into full swing. Japan has a national holiday, and China, ex Hong Kong, South Korea, Vietnam and Taiwan are all closed today. Tomorrow most of the rest of Asia joins them, although the ever-diligent Japanese will be back at their desks. Activity, therefore, will be muted in Asia today. With much lower than average liquidity, headline-driven volatility spikes are the only thing likely to awaken Asian markets from their slumber.

President’s Xi and Biden conducted their first person-to-person call this morning. Both sides appear to have struck a conciliatory tone without giving too much away, but the civilised preliminary manoeuvres will be markets positive at the fringe. Earlier in the day, US administration officials signalled that export restrictions of sensitive US technology would remain, as would the Trump-tariffs for now. The new normal remains mostly intact, although financial markets long-ago took it in their stride. The initial contact appears to have been civilised though, and for that, the rest of the world can be grateful.

This evening, US Jobless Claims is about the only data point of note over the next 24 hours, with Initial Claims expected to fall slightly to 757,000. The January data should mark the end of the worst for the United States, with Covid-19 cases falling, some reopening occurring, and the country starting to get its act together on the vaccination front. Given the sheer number of infections in the United States, it is perversely positioned to achieve herd immunity much sooner than any other developed nation except perhaps the United Kingdom. That will be a positive story that will gain more traction from now on, despite the appalling human cost in achieving it.

Otherwise, it remains to wish all my readers, a prosperous Year of the Ox. Thank you for all of your support over the past Lunar New Year. Your tolerance of my irrational grammar and my Kiwi brand of down-to-earth analysis with a touch of humour is much appreciated. Like MacArthur, I shall return, on Monday. And another year older, I’ve just realised.

Gong Xi Fa Cai!

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