Asia supported on robust Caixin survey, RBA delivers no surprises, Powell on tap

Asian equity markets higher on Moderna, Chinese PMI

Global equities are starting December nicely after both Moderna takes the next step in getting its COVID-19 vaccine authorized and China’s Caixin PMI surged to a 10-year high, as external demand impresses.  Shanghai soars following the private survey release, leading the gains in Asia.  The Kospi index rallied after the final reading for South Korean GDP grew 2.1%, greater than initially estimated and the fastest expansion since 2009.  Improved investment helped deliver the first expansion in a few quarters.  The Nikkei 225 shrugged off third-quarter data that showed business investment continued to decline as investors directed their attention on corporate earnings.

The key driver for risk appetite remains coronavirus vaccine progress.  Moderna’s final efficacy data showed that their vaccine was 100% against severe disease, providing strong optimism that the US and Europe could start distribution later this month.  COVID-19 will continue to drive short-term moves, just like today’s lower open for the Hang Seng.  Hong Kong’s restrictive measures will provide some short-term pressure on the Hang Seng, but that could be short-lived if the broader market rally continues.

RBA holds the course

The Australian dollar held onto its small gains after the RBA rate decision delivered no surprises.  The ASX 200 struggled to keep its small gains and is down slightly in early trade.  The RBA kept both the cash target rate and three-year yield target at 0.10% and kept the bond purchase program at A$100 billion.  The prior policy meeting saw the RBA deliver strong action, so given the recovery since then, it came as no surprise that they stood pat on rates and QE.

The RBA can put monetary on cruise control as high unemployment remains an issue and will take some time to recover.

Powell testimony next

Fed Chair Powell’s prepared Senate Testimony provided a reality check for investors that several challenges and uncertainties remain for both the economy and coronavirus production and distribution.  Powell will testify before the Senate Banking Committee on the Cares Act and likely reiterate the urgency for Congress to provide more support.  Investors have been waiting months for another COVID relief bill and that might only happen if we see a major downturn in the labor market.

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