Follow the leader

Apart from being another year older, not much has materially changed in the world over the weekend from my perspective. Markets remain target fixated on the Biden stimulus and vaccine rollouts as the magic panacea for the world’s pandemic ills. With the world awash with liquidity looking for a home in a zero per cent world, that naturally translated into higher equities on Friday, and will undoubtedly mean the same for Asia today.

Cyclicals also remain in much favour, with speculative frenzy apparent in oil markets today as black gold moves higher on global recovery expectations. Copper has also moved back to new 7.5-year highs. Platinum’s impressive rally is extending in Asia this morning on the global recovery; more people buy cars equals more catalytic converters trade.

The world’s inflation hunters are on high alert because of that, although if you strip the United States out of the equation, inflation is as elusive as ever in Europe, and Japan, and China, South Korea, Thailand, Malaysia, Singapore and even Indonesia. Notably, US 30-year bond yields climbed back over 2.0% on Friday, with the curve steepening again in general.

That won’t be enough to knock equities off their perch, as FOMO long ago swamped dividend yields in a flood of central bank money as technology “democratised” the markets. And financial markets are, after all, forward-looking don’t you know? That future being nuclear powered post-pandemic growth. US 10-year yields will need to approach 2.0% for that to happen, in my opinion, and on that front, we have a long way to go.

Bitcoin closing in on USD 50,000

The US dollar debasement inflation hedge story continues apace in the crypto space, although not in gold markets, an inflation hedge for centuries. Bitcoin traded as high as USD49,700.00 worth of fiat US dollars backed by the taxpayer revenues of America, something all fiat currencies theoretically have in common and cryptos do not. Every time an institution mumbles about accepting digital currency, most likely to hedge their bets in case it works, cryptos jump in value as the “mainstream acceptance” theory gathers more weight. Such was the case last week.

Bitcoin has retreated this morning as the underlying theoretical basis of cryptos, Elon Musk’s Twitter account, mentioned something about it being ok to sell cryptos with funny animal pictures on them. Nothing was said about the financial revolution of this distributed ledger business and cryptos and changing the world. I haven’t heard it mentioned for years actually, and I can’t buy a latte down the road with a crypto with an animal face on it. I only hear that it will go up every day as the revolution money heists the US dollar system while singing Bella Ciao with vigour.

Bitcoin will probably go up above USD50,000 this week, or perhaps in the next 30 minutes. We may need another financial institution to announce they’ll offer crypto custodial services for their wealthy private clients. I prefer to concentrate on fundamentals though with cryptos. Therefore, I shall wait for Elon Musk’s Twitter account to tell me what to do, because nothing is more fundamental than that, and it is always right.

Back in the real world where we all live our lives, market turnover is likely to be muted today with mainland China and Hong Kong, amongst others, closed for Lunar New Year, and the United States closed for a public holiday. Nevertheless, there are data releases aplenty in the coming 24 hours from peripheral Asia.

Japan Q4 Preliminary GDP rose by a higher than expected 3.0% this morning, with Thailand Q4 GDP also outperforming, increasing 1.30%. Singapore Q4 GDP also surpassed although both Thailand and Singapore will finish 2020 lower than where they started. The underlying picture is one of a nascent recovery in non-China Asia and should be further confirmed by a positive trade balance for Indonesia. That will be supportive for regional equities although until international borders reopen, gains in ASEAN will be limited. Singapore’s budget tomorrow will be fiscally expansionary, but the data means that government largesse has room to be pared back somewhat.

India’s WPI will be closely monitored this afternoon with January expected to print at around 1.30% YoY. The stagflationary pressures that hamstrung the Reserve Bank of India last year appear to be ebbing, although higher oil prices will limit that. A number around 1.30% would be enough to lift Indian equity markets, increasing expectations that an RBI rate cut will arrive sooner than later. Lower funding costs also reducing pressure on government borrowing, another longer-term positive.

With China away until Thursday, most attention this week will be focused on US Retail Sales on Wednesday, and the plethora of services and composite PMI’s from around the world on Friday. Indonesia’s central bank will announce its latest rate decision on Thursday. I suspect they will remain unchanged with USD/IDR unable to shake off its 14,000 handles. On Friday, Australian Retail Sales should show the lucky country’s recovery remains on track and be market positive Downunder on the periphery.

In the meantime, don’t miss out, keep buying everything.

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