Asian markets mixed following losses on Wall Street; bond yields up again
A four-day rally on Wall Street ended on Monday, with the S&P500 starting the week with a 0.7% loss (equity futures have tracked sideways since the close). Stocks were likely pressured by the continued upward march in bond yields, with the 10Y UST breaching 1.15% for the first time since March last year. Widening spreads of USTs against other countries also appeared to offer further upside to the greenback, with the euro falling to a 4-week low. In US political news, a White House official told reporters that President Trump and VP Pence had met and agreed to work together until the end of their term, seemingly ruling out either a resignation by Trump or Pence invoking the 25th Amendment to remove Trump early. Therefore, the House will likely proceed with impeachment tomorrow, with the President charged with ‘incitement of insurrection’, seeking to both remove Trump from his current term and ensure that Trump is ineligible to seek office again.
Turning to the Asia-Pacific region, equity markets were very mixed today while the continued selloff in USTs has placed further upward pressure on regional bond yields. In China, equities rebounded strongly from two days of losses with the CSI300 climbing over 2%, while the Hang Seng rose 0.8%. At the other end of the spectrum, Malaysian stocks fell 0.7% after the country’s King declared a state of emergency, allowing the PM and Cabinet to respond to rising coronavirus cases without the need to refer to Parliament. Meanwhile, following yesterday’s substantial intraday about-face, South Korea’s high-flying KOSPI fell more than 3% in afternoon trade, before cutting its losses to just 0.7% during the final hour. Australia’s ASX200 fell 0.3% as the 10Y ACGB yield increased 4bps to a 10-month high of 1.14%.
Returning from Monday’s holiday, Japan’s TOPIX closed with a modest 0.2% gain. In local coronavirus news, PM Suga said that tomorrow he would speak to his advisory committee before expanding the current state of emergency in Tokyo to the Osaka, Hyogo and Kyoto prefectures (other prefectures also seem likely to seek this declaration over coming days). Meanwhile, Finance Minister Aso said that it would pay up to ¥400k to suppliers impacted by plunging sales at restaurants and bars (for now, this payment will be accommodated within the existing budget). Separately, to further PM Suga’s goal of turning Japan into a global financial centre, Aso announced that Japan is opening an English language service centre to aid foreign financial firms.
Japan’s Economy Watchers survey suggests current conditions weakened further in December but outlook stabilised
As far as data are concerned, the focus in Japan today was the Cabinet Office Economy Watchers survey for December, especially after the sharp decline in sentiment that was evident across the key indices in November. Sadly, but predictably given the sharp upswing in local coronavirus cases, the headline current conditions DI slumped a further 10.1pts to a 7-month low of 35.5 – a slightly larger fall than analysts had expected. In the detail, the household sector index fell an even greater 11.4pts to 33.0, with the indices measuring sentiment amongst those respondents interacting with the food and services sectors slumping by about 20pts apiece. The corporate sector index was slightly more resilient, but this still fell 6.6pts to a 4-month low of 41.5. Unsurprisingly, the non-manufacturing index declined a steep 9.7pts to a 6-month low of 37.9, whereas the manufacturing index fell just 2.0pts to a 4-month low of 46.6. If there is a silver lining, it is that respondents expect conditions not to worsen further over the coming 2-3 months. Indeed, the overall expectations index edged up 0.6pts to 37.1 in December, with the food sector hopeful that business conditions will turn slightly less dire over the period ahead.
The BoJ’s forthcoming Regional Economic Report, released on Thursday, and next Monday’s Reuters Tankan survey will cast further light on economic conditions in Japan.
Japanese bank lending growth steady in December
In other Japanese news, the BoJ reported that total bank lending increased 6.2%Y/Y in December, unchanged from a month earlier. Lending by the major city banks – which had increased sharply at the onset of the pandemic as firms sought to bolster liquidity – increased 1.0%M/M. This marked the steepest increase since June and caused annual growth to increase 0.2ppts to 7.1%Y/Y. By contrast, growth in lending by regional banks slowed 0.2ppts to 5.0%Y/Y while growth in lending at shinkin banks was steady at 8.3%Y/Y. On the other side of the ledger, bank deposits increased by a further ¥3.3bn in December, causing annual growth to increase to a very elevated 9.3%Y/Y – growth that continues to point to precautionary behaviour by households.
Finally, balance of payments data revealed an adjusted current account surplus of ¥2.34trn in November – the largest surplus since February. The widening in November reflected both a larger merchandise trade surplus (just short of ¥1trn during the month) and a larger surplus on primary income.
UK: BRC and Barclaycard data suggest weak festive period for non-food consumer spending
According to Barclaycard, UK consumer spending last month fell 2.3%Y/Y, the biggest drop in six months, despite a surge in food and online sales. Indeed, according to the Barclaycard data, online retail rose more than 50%Y/Y and spending on ‘essentials’ rose 4.5%Y/Y. But in-store sales fell 8.3%Y/Y. Given restrictions on movement and socialising, spending on fuel fell by more than one fifth with the total travel spend down more than 63%Y/Y. And expenditure on non-essential items declined by almost 5%Y/Y, the steepest drop since June. Spending in pubs, bars and restaurants down two-thirds or more due to the pandemic and associated localised restrictions.
The BRC’s December survey, which focuses on the fortunes of major retailers, suggested that total retail sales rose 1.8%Y/Y in nominal terms last month, similarly supported by spending on food, which was up 7.3%Y/Y. And it left the survey’s measure of growth in total retail sales on a three-month basis at 2.5%3M/Y, the weakest since July. The survey’s measure of like-for-like sales, which excludes stores closed due to restrictions, rose 4.8%Y/Y. But over the three months to December, in-store sales of non-food items declined by 24.7%3M/Y on a total basis and by 14.4%3M/Y on a like-for-like basis. Looking at 2020 overall, the BRC measure of total sales fell 0.3%Y/Y, marking the worst year on the series, with food sales growth of 5.4%Y/Y but non-food sales down 5.0%Y/Y.
Australian consumer confidence steady in early January, but spending attitudes improve
The first reading of Australia’s weekly ANZ-Roy Morgan consumer confidence index for 2021 was little changed from the last year’s final survey (taken just ahead of Xmas). The headline index edged down 0.1pt to 108.9. While respondents were slightly less positive about the near-term economic outlook, the index measuring attitudes to buying major household items increased to the highest level since March last year.
Quiet day ahead in the UK and euro area; NFIB survey and JOLTS labour market data ahead in the US
There are no major economic reports ahead today in either the euro area or the UK. In the US, this week’s data flow kicks off later this morning with the NFIB small business survey for December and JOLTS job report for November, although neither is likely to move markets appreciably.