Markets
A grim Asian equity mood rolled over into European dealings. Overall better-than-expected European Q4 GDP growth figures in France (-1.3% q/q), Germany (0.1% q/q), Spain (0.4% q/q) and Belgium (0.2% q/q) suggest the economic downturn in the euro zone during the final quarter of 2020 was less than initially feared. The reports failed to lift (equity market) spirits sustainably though with markets eying the stricter and prolonged lockdown measures in place well into 2021. At the same time worries about the retail trading frenzy still linger. Investors do not want to be caught by surprise (again) going into the weekend if large market participants are forced to cut risky exposure to cover their losses. European equities shed 1.5%, ignoring a report from pharmaceutical company Johnson & Johnson releasing solid – yet less effective compared to peers – test results from its Covid vaccine (see below). Wall Street opens 0.5-1% lower. The equity risk-off did not resonate in other markets however. Core bonds came under pressure relatively quickly during the European session with a second whammy coming from the J&J report. The US yield curve bear steepens with yield changes varying from 2.2 bps (5-yr) to 5.3 bps (30-yr). The 10-yr yield (+5.1 bps, the bulk of which coming from rising inflation expectations) further rebounds after hitting the symbolic 1% level (also near the lower bound of the upward trend channel) yesterday. The US core PCE deflator, the Fed’s preferred inflation gauge, came in a bit stronger than expected (0.3%, 1.5%) but remains too far below the symmetric 2% target to trigger any market reaction. German yields rise 2 bps (2-yr) to 5.5 bps (30-yr). Peripheral spreads tighten with Italy (-3 bps) and Greece (-4 bps) outperforming peers.
The US dollar swapped Asian strength for European/American weakness amid a gradual improvement of risk sentiment. EUR/USD reversed a downtrend that brought the pair near 1.21 to currently change hands around 1.215. USD/JPY retraces some of this morning’s gains . The technical picture still looks benign with this morning’s topside break-out from the downward trend channel still intact. The currency pair is filling bids in the 104.7 area. Oil and other commodity sensitive currencies such as the New Zealand, Australian and Canadian dollar and the Norwegian krone all profit from commodity prices clawing back from yesterday’s losses. The pound sterling slid during early European dealings temporarily from EUR/GBP 0.883 to 0.887 in an attempt to settle again in the sideways trading range. That failed however as the pound quickly recouped losses to trade at around EUR/GBP 0.884 currently. As things currently stand, EUR/GBP is about to close the week below key support at 0.886. This would turn the technical picture in favour of the pound.
News Headlines
Economic activity in Taiwan rose 4.94% Y/Y in Q4, up from 2.96% Y/Y in the previous quarter. Full-year growth in 2020 came in at 2.98% compared to 2.96% in 2019. As such Taiwan is one of the few industrialized countries to reach positive growth in 2020. A 20% export rise of electronics and telecommunications products propelled Q4 growth. Economic outperformance in 2020 was also the result of keeping the COVID-19 outbreak under control and avoiding lockdowns. It was also the first time since 1990 that Taiwan growth outpaced that of China.
Pharma company Johnson & Johnson reported that its single-dose vaccine was 66% effective in preventing COVID 19 according to a 44 000 person study that was developed across three continents and against multiple variants. According to the study, the vaccine was 85% effective in stopping sever disease and preventing hospitalizations. The J&J vaccine does not require a second shot and doesn’t need to be kept frozen, contrary to the Pfizer/BionTech or de Moderna vaccines.
