The USD2.8 billion antitrust fine levelled upon Alibaba by Chinese authorities this weekend has set the tone for the Asian equity market this morning, which is a sea of red. Perversely, Alibaba’s stock has rallied as the fine wasn’t as bad as it could have been (roughly 4.0% of sales). However, it is the thought that counts and investors seem concerned that Alibaba will not be the last China tech giant in the fine firing line.
Federal Reserve Chairman Jerome Powell has added some peripheral nerves stating the US economy is at an “inflection point” during an interview on 60 Minutes. The US recovery is balanced out by the downside risks of surging Covid-19 cases globally.
Another likely source of tension is US bond yields which rose on Friday after US PPI data printed much higher than expected. Although US equity markets shrugged it off, US index futures have retreated this morning, adding another negative for Asian markets, which were notable for their caution last week. The US has three, ten and thirty-year bond auctions this week, and bid-to-cover nerves have risen.
Japan PPI printed above expectations this morning at 0.80% MoM, with the YoY data also outperforming. Inflation nerves won’t be assuaged anytime soon, with the global calendar bookended by US CPI for March tomorrow evening, and China Q1 GDP, Industrial Production and Retail Sales on Friday. India also releases March CPI this afternoon. With the Indian rupee slumping after the Reserve Bank of India quantitative easing announcement last week, a print above 5.50%, as it grapples with another wave of Covid-19, could renew pressure on the currency and local equity markets.
Asia has three central bank announcements this week, starting with the Reserve Bank of New Zealand and Singapore on Wednesday, followed by the Bank of Korea on Thursday. All three will remain unchanged, but it will be the policy statements that hold the most interest as ever—notably, their outlooks for growth and inflation.
Australia sees the release of employment data on Thursday, which should retreat from last month’s blowout of 89,000 jobs added but still come in around 40,000, although it is a volatile series. The lucky country may run into a few headwinds this week, though, as the government basically threw their vaccination schedule for 2021 into the rubbish bin this morning due to AstraZeneca production and import issues, as well as age-related restrictions for its use.
Covid-19 complacency by financial markets may continue to be tested this week. Australia’s issues are being replicated thanks to AstraZeneca safety concerns globally, and export bans by Europe, India and even the US, which is sitting on 20 million doses. Johnson & Johnson’s one-shot vaccine is also under a blood-clotting spotlight, and an Israeli report this weekend suggested the South African variant could bypass the Pfizer BioNTech shot. None of this is good news for the reopening of borders and travel bubbles, and one thing markets have not priced is Covid-19 lingering for longer; perhaps they should.
Geopolitics doesn’t respect viruses, and the heatmap has hotspots continuing to rise in intensity. The US warned China over Taiwan today, with China continuing to play games with fleets of ships over the Spratly Islands. Meanwhile, tensions continue to escalate on Ukraine’s Eastern border as the Russians and their vassals build up military forces. Iran’s most important nuclear facility has suffered an unspecified “incident” this weekend as well, immediately blamed on the Israelis. Iran’s response, Russia’s “peacekeeping”, the list goes on, and any one of these hotspots could throw an unexpected banana skin under global markets. Despite President Biden’s election last year, the world still has plenty of countries run by chest-thumping alpha males.
Looking at the above in totality, it is not surprising that Asian markets look a little hesitant today. Of the above, I would say that the US CPI and Core CPI and its 10-year and 30-year auctions have the potential to impact markets most. Although US equity markets with the return of the FOMO gnomes to power have shrugged off the inflation story, other asset classes in the US and across the globe have shown a high correlation to the US 10-year recently. I have suspected that the US yield story had not gone away. This week’s data calendar will give plenty of ammunition to prove me right or wrong.