Asian equities stabilise

FOMC causes minor taper tantrum

The financial markets treated investors and traders to a taper tantrum overnight, following the FOMC decision. The FOMC left rates unchanged as expected but downgraded their outlook due to vaccine delays and risks. Perhaps most importantly, Chairman Powell said afterwards that a reduction in quantitative easing was not even on the table as a discussion point.

Wall Street has its biggest drop in 3-months overnight with the S&P 500 falling 2.57%, the Nasdaq dropping 2.61%, and the Dow Jones slipping 2.16%. Even stellar results from Apple and Facebook couldn’t lift the malaise. Much of that was probably due to their outlooks, with Apple declining to offer 2021 guidance and Facebook highlighting regulatory risks and the challenges of repeating 2020’s growth. Tesla missed earnings expectations and declined to provide a guess at how many cars they would deliver in 2021. Notably, the index futures on all three US indices have held their own this morning, being mostly unchanged.

The picture is a sea of red in Asia, but major exchanges have managed to take back some of their early losses. The Nikkei 225 is down 1.25%, with the Kospi falling 1.60%. In China, the Shanghai Composite is 1.45% down, with the CSI 300 1.25% lower. Hong Kong is down 2.0% as Mainland retail fast money exits, but Singapore and Taipei are only 1.0% lower. Jakarta has eased only 0.50%, while Kuala Lumpur has bucked the trend, edging 0.30% higher. Australia has done what it does best, slavishly follow Wall Street. Both the ASX 200 and All Ordinaries being around 2.15% lower.

Although the mood is sombre in Asia, the price action does not suggest that panicked investors are running for the exit door. In fact, most of Asia is outperforming Wall Street in a relative sense. Part of that is likely due to the stabilisation of US index futures this morning. All-in-all the price action hints that today’s falls are a correction of extended long positioning as momentum temporarily ebbs.

This evening, the US GDP is the equity market’s next significant risk point, with an underwhelming number likely to extend the malaise. That could all change if J&J releases positive vaccine data in the next two days.

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