Lukewarm Congratulations

Global equities were mixed and Wall Street looked to end a rollercoaster week with gains as the juxtaposition between vaccine optimism and a severe second wave of the virus in western economies pulled markets in both directions.

A handful of additional networks called Arizona for Joe Biden, further sealing an already done deal. US election officials released a statement calling the vote “the most secure in American history.” In the same statement, they cited “many unfounded claims and opportunities for misinformation” and noted that “there is no evidence that any voting system deleted or lost votes, changed votes, or was in any way compromised.” The statement was posted to an official US government website.

China finally passed along its congratulations to Biden. “We have been following the reaction on this from both within the United States and from the international community,” Foreign Ministry spokesman Wang Wenbin said Friday at a briefing in Beijing. “We respect the American people’s choice and extend congratulations to Mr. Biden and Ms. Harris.”

His remarks came after Donald Trump signed an executive order banning US investments in Chinese companies owned or operated by the PLA.

Biden will immediately need to decide what his administration’s stance will be vis-à-vis Hong Kong, where the legislature is being squeezed, and Taiwan, an increasingly combustible powder keg that the Trump administration has been keen to set on fire of late with official visits and arms sales. As of Friday, Xi had yet to speak publicly about Biden or Harris.

Contrary to what you might be led to believe if you frequent the “wrong” corners of the internet, Biden will not be “soft” on China. If anything, China is likely concerned that while Biden’s approach will be more predictable than Trump’s, it will also be more systematic and coordinated with other nations, leaving less room for Beijing’s propaganda machine to paint the US as an irrational actor.

Speaking of China, SOE credit events are in the headlines after Yongcheng Coal & Electricity’s default on a 1 billion yuan note prompted declines in the bonds of other Chinese state-owned enterprises. Out of five onshore bond defaults in the last two months, three were SOEs. There have been six SOE defaults in 2020. Although the total number of defaults in China is lower this year, the stakes are higher. 163 billion yuan outstanding has been impacted by 19 domestic defaults in 2020. That compares to 131 billion yuan from 36 defaults in 2019.

This is starting to affect bank shares, and pushed Shanghai’s largest stocks sharply lower into the weekend. You can add credit concerns to the list of worries around Chinese equities. Obviously, tech stocks are in the spotlight after Xi killed Ant’s IPO and Beijing moved to crack down on tech giants.

In any event, investors and traders were left to debate the same narratives Friday. “The rollercoaster of the last two weeks seems to have finally come to a halt, everybody is exhausted, and the overall market still feels vulnerable,” AxiCorp’s Stephen Innes said.

“Let’s hope that the vaccine’s effects last longer than the positive mood that resulted from the news that Pfizer’s vaccine appears to be effective,” Rabobank quipped.

“Globally, COVID infection rates remain alarming and death rates are still rising [so] it’s hardly surprising that politicians are urging us not to get overexcited,” SocGen’s Kit Juckes remarked. “Markets have reacted to the downbeat tone, but I’m not sure how long that will last,” he went on to say Friday. “The combination of easy money and vaccine is too powerful and markets have a longer-term horizon than a few months.”

That’s true. The problem is, a very small percentage of those who contract COVID do not, in fact, have a “longer-term horizon than a few months.” And neither do tens of millions of jobless who face economic precarity.