Dramatic Market Adjustment Continues

Overview: Rising rates continue to spur a rotation and retreat in stocks. Yesterday the NASDAQ sold-off by nearly 2.5% while the Dow Industrials eked out a minor gain. Equities are mostly higher in the Asia Pacific region while Japanese markets were on holiday. Hong Kong led the advancers, but China and South Korea extended losses. The early attempt to rally in Europe failed and the Dow Jones Stoxx 600 has fallen through the 20-day moving average for the first time in nearly three weeks. Energy and real estate are higher, while information technology and utilities are under the most pressure.US shares are extending yesterday's losses. The US 10-year yield is steady, around 1.36%. European yields are 3-4 bp higher after staging a sharp recovery following comments yesterday from ECB President Lagarde warning in effect, the central bank stands ready to resist premature tightening. The dollar is firm against all the majors, though sterling is holding on to minor gains. Among emerging markets, East Asian currencies are doing better, while central European currencies are weaker. The JP Morgan Emerging Market Currency Index is lower for the second consecutive session. Gold extended yesterday's rally. However, sellers emerged near $1816, and the yellow metal looks poised to test the $1800 area. The damage to Texas's oil infrastructure is exacerbating the tightness in the crude market, and April WTI rose to $63 before consolidating. There is increasing talk of $70.  

Asia Pacific

China is reviewing its rare earths policy.  The latest reports indicate that its focus may not be on rare earths themselves but the technology to refine and purify the materials. This may be a more powerful chokepoint. It could ban or limit technology sales, but it would seem to only encourage development abroad. The US moved against companies that service the Chinese military. The US gets about 80% of its rare earths from China. There are obviously military applications. China's first move may be to ban sales to a US defense contractor, such as Lockheed Martin, who incurs Beijing's wrath for arms sales to Taiwan.  

Taiwan will report January export orders tomorrow. Officials have recently doubled their 2021 export outlook to almost 9.6% from about 4.6%, encouraged apparently by the demand for semiconductor chips. This feeds into a growing trade surplus (expected to be around $64 bln after a little less than $59 bln last year) and a stronger GDP (~4.7% after 3.1% in 2020). Officials warned of the upward pressure on the Taiwanese dollar, which has risen by about 8.2% over the past 12-months. The central bank often engages in "smoothing operations" in the foreign exchange market late in the local session and was put on the US Treasury's watch list in December.  

Facebook and Canberra appear to have resolved the dispute, which had seen the platform eliminate news and news sharing features last week in Australia. The service will be reengaged in the coming days. The Australian legislation will be modified to give the platforms time to strike a deal with publishers before being forced into arbitration. This is an important skirmish in the larger effort to establish the rules of engagement with the powerful internet companies. Many other countries are wrestling with similar issues.  

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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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