1 / BET ON BIDEN
A business that is wowing markets in the early days of 2021: Reflation, nowhere more evident than in bonds, where 10-year US Treasury yields topped 1% based on results of the second round of the Georgia Senate.
Betting on a fiscal boost under President-elect Joe Biden, investors pushed the 10-year TIPS equilibrium inflation rate above 2% for the first time since 2018. Long-term inflation expectations for the area euro are close to one-year highs.
But COVID-19 is raging and economies are facing tighter economic closures and rapidly expanding variants. Can a rebound in prices be sustained? December euro zone inflation was unchanged at -0.3%, pulling the bloc’s bond yields lower. Only one side of the reflation debate will turn out to be correct.
2 / CHINA AND TRUMP
A series of parting shots in the direction of Beijing will have investors hold their breath until January 20, when US President Donald Trump hands over the keys to 1600 Pennsylvania Avenue.
Since November, audits have been forced on Chinese companies, trade restrictions have been extended, as well as bans on Chinese app transactions and investment in Chinese companies, which in turn leads to the removal of the indices. .
China has responded angrily but without taking action; Biden has remained silent. The concern is that things will crack even more. Market nerves are evident in the twists of Chinese telcos amid the New York Stock Exchange’s double flip on their listing status, as well as shares in Alibaba and Tencent on speculation that bans could extend to them.
3 / THE BANKS START UP
Banks start the US corporate earnings season in earnest with JP Morgan, Citigroup and Wells Fargo releasing fourth-quarter results on Friday – the first S&P 500 companies to report that period.
Bank stocks have been on a roll as COVID-19 vaccine data raised hopes of a potential economic reopening in the coming months. Since early November, the S&P 500 bank index has soared 37% versus an 8% rise for the overall benchmark.
Profits for finance companies are expected to have fallen 6.6% in the fourth quarter versus a 10.3% drop for S&P 500 companies overall, according to Refinitiv data as of Dec. 31.
4 / RETURN TO NORMALITY
Upcoming Chinese data, from inflation and trade to credit and money supply figures, should confirm that Beijing has re-dialed most of its easy money policies from the pandemic period to December.
The People’s Bank of China says that monetary policy in 2021 will be specific and flexible. Debt forgiveness and cheap money will be available to small businesses. The recent series of corporate defaults also shows that the economy is deleveraging.
Interest rate cuts are over, analysts say, but policy will not tighten sharply. A subtle tightening through the yuan is already underway, with a 7% rise against the dollar in 2020, but even here the central bank has signaled that it does not want any excess.
5 / WORLD TRADE
Global merchandise trade will rebound by 7.2% in 2021 after declining by one-tenth last year, according to the World Trade Organization. The rebound is already evident in freight rates, container traffic volumes, and cargo rates.
The recent data bodes well. Imports from the United States have almost returned to pre-crisis levels, German exports for November rose for the seventh consecutive month, and exports from Taiwan in December reached record levels. Figures from China on Thursday and the euro zone on Friday will show how their trade fared towards the end of 2020.
Pandemic-related medical equipment and telework-related goods dominate exports. Chip sales have led export growth in promising South Korea. This has also increased demand for copper, iron and other raw materials, benefiting African and South American exporters.
Good news for global GDP, which is closely related to trade and is forecast to increase by more than 5% this year.
(Report by Dhara Ranasinghe and Sujata Rao in London, Vidya Ranganathan and Tom Westbrook in Singapore, Lewis Krauskopf in New York, compiled by Karin Strohecker, Larry KingS edition) .. Translate serenitymarkets.com