Markets Look Past Near-Term Challenges

Overview: News that the AstraZeneca vaccine was 70% effective but could be enhanced by changing dosage is lifting spirits and boosting equities. Japan's markets were closed for a national holiday, but all the equity markets in the region advanced and many by more than 1%. Strong export figures for the first 20 days of November helped lift South Korea's Kospi to almost a record high. Europe's Dow Jones Stoxx 600 gapped higher traded at a new nine-month high.US shares are also trading higher, and the Nasdaq appears to be lagging a bit. Core benchmark 10-year yields in Europe and the US are mostly a little firmer, while peripheral yields are softer. The US yield 10-year yield is up about three basis points to 0.85%. The dollar is broadly weaker. Sterling and the Antipodeans are leading today's move, while the Swiss franc and Japanese yen are laggards. Most emerging market currencies are also gaining on the greenback. The two notable exceptions are the Turkish lira, which is experiencing renewed selling, apparently from domestic names, and the Chinese yuan, which has slipped slightly. The South African rand is the strongest of the emerging market currencies, even though the bonds are under modest pressure following Moody's and Fitch's downgrade ahead of the weekend. Gold has lost its luster and is trading quietly between around $1864 and $1876.January WTI is firm and traded at new two-month highs above $43.  

Asia Pacific

Australia's November preliminary PMI showed the recovery is expanding. The manufacturing PMI rose to 56.1 from 54.2, and the service PMI rose to 54.9 from 53.7. This translated into a 54.7 composite reading, the best since July, after 53.5 in October. Australia's news was part of a string of favorable economic news from the region. For example, New Zealand reported a 28% jump in Q3 retail sales, well above the 19% economists were anticipating. South Korea reported its exports jumped 11.1% year-over-year in the first 20-day of November, helped by strong technology and autos. Exports to China were up 7.2%, to the US 15%, and the EU 21%. Japan was out the outlier, and South Korean exports were off a little more than 7%. Imports rose 1.3%, the first increase since March.  

China's Xi suggested interest in joining the Comprehension and Progressive Trans-Pacific Partnership. It was denigrated by many American observers, yet whatever instrument of containment that was to complement the pivot to Asia ended when the US withdrew. Seven countries signed both the CPTPP and the ASEAN-led Regional Comprehensive Economic Partnership, including Japan, Australia, New Zealand, and Singapore. There are four members of the CPTPP that are not members of the RCEP, Canada, Mexico, Chile, and Peru. Japan's Prime Minister Suga and others want to expand the CPTPP. Beijing contrasts its multilateral approach to the US unilateralism. The RCEP brings China, Japan, and South Korea into a trade agreement for the first time, which seems like a notable accomplishment. It could even spur a bilateral trade agreement between Japan and South Korea, despite stark political differences. 

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Read more by Marc on his site Marc to Market.

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