Asian Stocks Climb With U.S. and European Futures; Silver Surges

01/02/2021 Asian stocks are higher this morning, with U.S. equity futures reversing earlier declines as concern receded over volatile retail trading and signs of an easing cash crunch in China aided sentiment. Silver futures surged. S&P 500 contracts reversed an earlier drop of more than 1% to trade higher with European futures. Traders fretting about the implications of short-squeezes stirred up on internet forums helped push U.S. shares lower on Friday. Silver futures advanced 6% after the metal became the latest focus of such chatter. Stocks in South Korea and Hong Kong outperformed. The onshore yuan slipped and Chinese stocks fluctuated after the People’s Bank of China injected funds in an effort to avoid a liquidity squeeze. The dollar edged lower and the yield on 10- year Treasuries ticked higher. Tencent is trading up 6.09% in HK. The JSE Top 40 futures are indicating a better start, up 640 points or 1.1%, with the Rand fairly steady at 15.11 vs the USD. We should see some support from Naspers and Prosus on the back of a rebound in Tencent.

Locally the FTSE/JSE Africa All-Share Index closed down 1.2% to 62,472, with most sectors ending in the red. Financials were down 1.5%, industrials lost 1.4%, with property and retailers also negative on the day. The gold sector was the only one to end the day in the black as investors return to the safe haven. The Rand was up 0.4% to 15.15 per US$, with the Yield on 10-year govt rand bonds that fell 2.50 bps to 8.74 bps.
Absa’s Purchasing Managers’ Index, a measure of factory sentiment which is compiled by the Bureau for Economic Research, is due to be published at 11am. The PMI is expected to fall after it dropped to 50.3 in December, a five- month low, as the country increased restrictions amid a rise in coronavirus cases.

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ECONOMIC DATA:

  • 11am: Jan. Absa Manufacturing PMI, est. 50.0, prior 50.3
  • Vehicle Sales YoY, est. -9.0%, prior -10.1%

EU/UK
The pan-European Stoxx 600 ended the session down by 1.9%, with retail stocks shedding 2.6% to lead losses as all sectors slid into negative territory. Sentiment has been jolted by a surge in speculative trading from retail investors, and several e-brokers took steps to curb the deliberate buying of heavily-shorted names on Thursday after a week of huge and seemingly synthetic moves in unfavored names like GameStop, spurred by Reddit group WallStreetBets. Also on Friday, the European Medicines Agency approved the vaccine developed by British pharma giant AstraZeneca for emergency use in the EU, around a month after it was first given the greenlight in the U.K., which recently left the bloc. But the European Commission also placed temporary controls on the export of coronavirus vaccines made inside the bloc, following a spat with AstraZeneca and wider supply issues. In corporate news, Daimler beat 2020 full-year profit expectations on Thursday on the back of a strong fourth quarter. New Commerzbank CEO Manfred Knof plans to cut a further 10,000 jobs and close hundreds of branches, Germany’s second-largest lender announced Thursday. On the data front, the French economy contracted by less than expected in the fourth quarter of 2020 amid a second national coronavirus lockdown, official statistics revealed Friday. Fourth-quarter GDP (gross domestic product) came in at 1.4% versus the -4% average consensus in a Reuters poll.
US
U.S. stocks fell sharply on Friday, wrapping up a roller-coaster week on Wall Street as heightened speculative trading by retail investors continued to unnerve the market. The Dow Jones Industrial average lost 620 points, or 2%, to 29,982, the first time the 30-stock gauge has closed below the 30,000 mark since Dec. 14. The S&P 500 fell 1.9% to 3,714 as 10 sectors registered losses. The Nasdaq Composite slid 2% to 13,070 as Apple dropped 3.7% and other major tech names slipped. All three major averages dropped more than 3% last week, posting their worst week since October. For January, the blue-chip Dow and the S&P 500 fell 2% and 1.1%, respectively, suffering their first negative month in four. The tech-heavy Nasdaq eked out a 1.4% gain on the month. Shares of GameStop jumped 67.9% after Robinhood said it would allow limited buying of the stock and other heavily shorted names after restricting access the day before. Robinhood raised more than $1 billion from its existing investors overnight, in addition to tapping bank credit lines, to ensure it had the capital required to allow some trading again in volatile stocks like GameStop. Investors are concerned that if GameStop continues to rise in such a volatile fashion, it may ripple through the financial markets, causing losses at brokers like Robinhood and forcing hedge funds who bet against the stock to sell other securities to raise cash.
ASIA
Stocks in Asia-Pacific are higher as data released showed manufacturing activity in China growing at a slower pace in January. South Korea’s Kospi was among the biggest gainers regionally as it jumped 2.23%. Hong Kong’s Hang Seng index also saw robust gains, advancing 1.91% by the afternoon. Mainland Chinese stocks nudged higher as the Shanghai composite rose fractionally while the Shenzhen component advanced 0.821%. A private survey showed Chinese manufacturing activity growth slowing in January, with the Caixin/Markit manufacturing Purchasing Managers’ Index (PMI) coming in at 51.5. That compared against expectations for a reading of 52.7 by analysts in a Reuters poll. In Japan, the Nikkei 225 rose 1.23%, while the Topix index advanced 1.09%. In Australia, the S&P/ASX 200 edged 0.81% higher. Shares of several Australia-listed miners surged: Argent Minerals soared more than 40% while Adriatic Metals jumped about 14% and South32 gained 3.54%. That came as spot silver prices rose more than 5% to about $28.54 an ounce. MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.4%.
COMMODITIES
Silver took center stage in the retail investor frenzy sweeping through markets, sending the precious metal to a five-month high and fueling a debate over the power of Reddit-inspired speculators to take on ever-bigger targets. The most-active silver futures on the Comex jumped as much as 8.7% to $29.25 an ounce, after a weekend buying binge that overwhelmed online sellers of silver coins and bars from the U.S. to Australia.
Oil edged higher in Asia — after the first back-to-back weekly declines since October — as investors weighed continued supply discipline from producers against a worsening short-term demand outlook. Futures in New York traded above $52 a barrel after falling 0.3% on Friday. OPEC and its allies estimated they implemented 99% of their agreed oil-supply curbs in January, according to a delegate who asked not to be named.
Gold gains in early Asian trade. The precious metal is likely to be supported for now by some current risk-off sentiment for equities, following investors’ concerns over hedge funds deleveraging after the Gamestop episode. The market is also focused on coronavirus-related developments amid worries over the new and more vaccine impervious Covid-19 strains. Spot gold is up 0.3% at $1,851.97 an ounce; platinum gained 2.5%, and palladium is up 1.3%.
Iron ore futures fell as investors accessed Chinese manufacturing figures that point to a potentially slower economic recovery, and weather-related disruptions at Australian ports. Iron ore futures fell 1% to $154.10 a ton on the Singapore Exchange, following a 1.8% drop last month.
Zinc rebounded after capping the worst monthly loss since February as falling prices triggered concerns on possible supply cuts. Copper traded with a weaker bias as investors tracked China’s economy. Zinc futures gained as much as 0.9% to $2,603 a ton on the London Metal Exchange, and traded at $2,602.50 at 10:58 a.m. in Singapore. Copper was steady after losing as much as 0.8% to $7,792 a ton. Nickel and aluminum rose, while tin eased.