A Subdued Start To A Big Week

Overview: What promises to be an eventful week has begun off on a mostly subdued note. Asia Pacific equities moved higher, again led by Hong Kong and ostensibly mainland buying.  The Hang Seng rose 2.4% to bring this year's gain to 10.75%. South Korea's Kospi also increased by more than 2%, and, so far this month, it is up almost 11.7%.  Most bourses advanced, though Taiwan, India, and a few smaller markets declined.  European shares are mixed.  Energy, real estate, financials, and industrials are drags, while information technology, healthcare, and materials are moving higher.  The Dow Jones Stoxx 600 is up slightly and about 2.6% this month.  US shares are trading higher, led by the NASDAQ (~5% this month), as several tech companies report earnings this week.  Benchmark 10-year yields are softer, especially in the European periphery, led by a six basis point decline in Italian bonds, despite a key vote later this week.  Other peripheral yields are off 3-4 bp, while the core is off two.  The 10-year US benchmark yield is little changed, around 1.08%.  The dollar is narrowly mixed, with the dollar-bloc and Scandis a little firmer and the other majors a little softer.  The emerging market currencies are also narrowly mixed, leaving the JP Morgan Emerging Markets Currency Index slightly lower for the third consecutive session.  Gold is firm and holding above the 200-day moving average (~$1848) that was violated last week. Crude oil is firm, and the March WTI contract is within the pre-weekend range.  It is hovering around last week's average close of around $52.80.  

Asia Pacific

An important battle is being waged in Australia.  The Morrison government wants the digital platforms to pay media companies for their news content.  Google and Facebook (FB) object.  At the end of last week, Google (GOOGL) was threatening to remove its search engine from Australia.  Australia generates an estimated $4 bln of revenue for Google of its roughly $1.8 trillion in revenue. Apparently, it would walk away from the $4 bln to avoid setting a precedent.  It is part of a broader re-examination of the power of digital platforms. It was seen recently too in the US when former President Trump was denied access to such platforms.  If they are purely private companies, then a broader leeway must be allowed.  Although I have had essays published in various papers, magazines, and journals.  A notable exception is the Wall Street Journal, despite my best efforts. No one, not even my mother, would argue that my freedom of speech has been denied.  However, the ubiquitous social media platforms appear to have taken on a public character, like utilities, gas, water, electricity, and therefore, the legal rights and responsibilities are still being negotiated.   

China has been harassing Taiwan via incursions into its airspace for months.  Often it is a couple reconnaissance aircraft, though sometimes it has been more aggressive tactically and materially.  This past Saturday, Beijing was particularly bellicose.  It sent eight bombers, four fighter jets, and one anti-submarine aircraft, according to reports. While a spokesperson for the new US national security confirmed that its support for Taiwan is "rock-solid," the situation is more complicated.  The new Biden administration has been clear that it is not immediately altering the policy toward Beijing that it inherited.  Anne Marie Slaughter, the Director of Planning at the State Department for a couple of years during Obama's first term, noted in a recent op-ed piece that Biden's inaugural speech contained a mere five sentences on foreign relations.  Yes, the Biden administration clearly is more multilateral, but how did it think China would respond to the invitation to the de facto Taiwanese ambassador to the US for the first time since 1979?  Moreover, in this context, given Secretary of State nominee Blinken's support of NATO membership for Georgia at his confirmation hearing, a realist in Beijing could rightly worry about a new attempt to project US power, such as a trade agreement with Taiwan or a defense pact (resolving the strategic ambiguity).  Ironically, as Ukraine and Georgia found out the hard way, such US or Western overtures can make countries less safe rather than more.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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