After a positive session on Wall Street on Friday, markets received another boost in Asia this morning, as 15 Asia-Pacific nations signed the Regional Comprehensive Economic Partnership (RCEP). It is not so much the content of RCEP, which rolls up a mishmash of regional agreements into one by ASEAN; instead, it is the nations that have been bolted into it. Australia, New Zealand and Chile are there, but for the first time, Asian heavyweights China, Japan and South Korea join as well in a single multilateral agreement.
The fact that the agreement got over the line after eight years of negotiation between a widely disparate group of nations, is an achievement in itself. That has left the Asia-Pacific with a feeling that there is life in the world, with or without the United States. Asia Pacific stock markets have rallied, oil has risen, and the US dollar has gently fallen today.
Otherwise, the weekend held no surprises. Covid-19 continues to rampage across the United States and Europe and is surging in Latin America, where Mexico hit the one million case landmark. President Donald Trump has still not conceded the election to Joe Biden; nor does he have to I might add until perhaps the results are certified by each state. That didn’t stop him heading to the golf course this weekend, as all good presidents should when their country is in the grip of a pandemic.
The world and even America itself appear to be moving on rapidly from the election and getting back to the monetary policy-driven asset price inflation trade. If the President can get himself off the socially distanced 18th fairway, the power of the Trump tweet can still cause volatility. However, that is likely to be short in duration, if frequent.
The great post-virus rotation trade has run out of steam for now. That is no surprise when markets priced in two years of post-Covid global growth in two hours after the Pfizer announcement. Moderna is apparently poised to announce its Phase-3 trial initial results in the next few weeks. We can expect the rotation trade to come back very loudly and quickly if those results are positive. If not, the correction will be short and sharp, as the street looks ahead to other vaccine candidates that fit the narrative they want to hear. Non-work-from-home sectors are probably buys on the dip now, no matter how bombed out they are.
Data from Asia has been impressive today, suggesting that RCEP is the icing on the cake of a region set to recover faster, and generally outperform, in 2021. Japan Preliminary GDP rose by 5.00% in Q3, well above the 4.40% expected. Japan’s economy will still shrink this year, but in combination with an anticipated supplementary budget soon from the Suga administration, the damage will be less than expected.
China Retail Sales rose 4.30% YoY for October, better than September, but less than forecast. Given the scale of China’s outperformance this year, they will get the benefit of the doubt this time around. Retail Sales’ rate of increase may be slowing, but they remain the envy of the world. Industrial Production YOY for October rose 6.90%, well above forecast at 6.50%. The data is all the more impressive as October contained an extended national holiday. China is showing no signs of a new US or Europe slowdown impacting on them to date and will lead the world out of recession in 2021.
Thailand’s GDP also outperformed, QoQ growth for Q3 rising 6.90%, well above the 4.90% forecast. Its tourism ravaged economy will still shrink year on year, with the Q3 data 6.40% lower than last year. It does highlight the continued trend of Asian outperformance though, helped in no small part by the region’s managing of the pandemic. If air travel and tourism come back to life in 2021, even modestly, the outperformance will quickly increase.
Indonesia’s Balance of Trade and Japan’s Industrial Production will be released shortly, and should continue to highlight Asia’s consistent, if uneven, recovery. India’s WPI for October YoY is expected to rise by 1.50%. Indian markets are closed for Diwali today, but a large undershoot would be positive for Indian markets, hinting that the country is getting on top of its stagflation issues. I fear though we shall be disappointed, which India has consistently done for all of 2020 on multiple fronts.
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