Markets Are Subdued Despite Impeachment And Record Chinese Trade Surplus

Overview: The capital markets are becalmed today. There does not appear to be much reaction to the news that the House of Representatives impeached President Trump an unprecedented second time with greater bipartisan support than previously (10 GOP voted with the Democratic majority). Nor has there been a significant reaction to Italy's political turmoil, where a small but key minority party withdrew from the governing coalition. Most Asia Pacific equity markets advanced, with China and Taiwan being notable exceptions. Europe's Dow Jones Stoxx 600 is pushing higher for the third consecutive session.US shares are also firmer. The US benchmark yield is holding around 1.10% after strong receptions to the 10- and 30-year bonds auctions this week. Core European bond yields are mostly a little lower, while the yields in the periphery are edging up. Italian bonds have weakened as the European session progressed and after bringing new long-term bonds to the market today. The dollar appears to be going nowhere quickly. The Swedish krona and dollar-bloc currencies are up around 0.25%-0.50%, but the euro, yen, sterling, and Swiss franc are little changed. Emerging market currencies are mostly higher, led by South Africa, Russia, and Mexico. The South Korean won and Taiwan dollar are laggards. Gold is heavy and hovering around the 200-day moving average (~$1843). After rallying to almost $54 a barrel yesterday, February WTI is consolidating. The upside momentum stalled yesterday, snapping a six-day advance.  

Asia Pacific

The US will not block Americans from investing in China's Alibaba, Tencent, or Baidu. However, the outgoing Trump Administration is adding several more companies to its ban. Separately, it has banned cotton products and tomatoes that come from Xinjiang on human rights grounds. The US imported about $9 bln of cotton last year and $10 mln of tomatoes.

China reported another record trade surplus in December, despite a slowing in exports and an increase in imports. Exports rose 18.1% year-over-year in December after a 21.1% increase in November. Imports rose by 6.5%, which is more than expected (5.7% median forecast in the Bloomberg survey) and stronger than the 4.5% gain in November. The trade surplus widened to $78.2 bln from $75.4 bln. China's 2020 trade surplus was nearly $630 bln after a $421 bln surplus in 2019. Of note, facemasks accounted for around 2% of China's exports last year, and exports of medical equipment/machines rose by nearly a third. Although commodity imports, like oil, copper, iron ore, slipped in December, annual records were reached.  

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Read more by Marc on his site Marc to Market.

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