Stocks Wilt Under Pressure From Rising Yields

Although the US and Europe are pressing Taiwan for help in alleviating the semiconductor shortage, which is hitting auto production in Europe, Asia, and the US and could boost consumer electronics prices, it is not merely an industry shortage. US efforts to contain China's expansion into leading tech sectors through trade barriers, export controls, and sanctions, exacerbating industry supply management. The chip shortage follows the imposition of Huawei restrictions (building chip inventories for its survival) and SMIC (China's largest chip fabricator). 

Japan and Taiwan reported strong export figures last week, and earlier today, South Korea joined the party. It reported that exports rose 16.7% year-over-year in the first 20-days of February. This understates the case. Adjusted for the number of workdays, South Korean exports rose by nearly 30%. Exports to China were up 37.7% year-over-year, and semiconductor exports rose by 27.5%. 

After poking above JPY106.20 last week, the US dollar retreated in the last three sessions and fell to about JPY105.25 ahead of the weekend. It bounced to JPY105.85, a (61.8%) retracement of the pullback today before consolidating above the 200-day moving average (~JPY105.50). The sell-off in equities appears to be dulling the signal from interest rates. The heavier tone in the European morning may draw bids from early North American participants. The Australian dollar pushed above $0.7900 for the first time in almost three years. It retreated to nearly $0.7855, where it found new bids in Europe. Note that the upper Bollinger Band (two standard deviations above the 20-day moving average) is near $0.7870 today. The PBOC set the dollar's reference rate at CNY6.4563, a little higher than the bank models Bloomberg surveyed. As widely expected, China kept its loan prime rates steady (one-year at 3.85% and five-year at 4.65%), but its open market operations remain stingy. Today it injected CNY10 bln with total maturities closer to CNY50 bln. The dollar continues to trade broadly sideways against the yuan and mostly stayed in the range set in the first two sessions of the year (~CNY6.43-CNY6.51), and it has not been above CNY6.50 since the first trading day.  

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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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