Global equities looked to take a step back Monday, in cautious trading on the last day of a blockbuster month.
Stocks put up one of their best performances ever in November, as vaccine news, the prospect of more predictable politics in the US, and a role for Janet Yellen in the incoming Joe Biden administration helped propel risk assets, even as virus lockdowns proliferated across western economies, threatening to plunge Europe and (quite possibly) the US, into double-dip downturns.
Rebalancing flows (out of equities) could be a factor. You’ll invariably hear chatter to that effect early this week. JPMorgan estimated that as much as $150 billion may need to come out of stocks as multi-asset investors rebalance.
The global economic narrative got another shot in the arm (bad vaccine pun fully intended) from still more solid data out of China, where the economy continues to rebound.
The official manufacturing PMI printed 52.1 for November, the NBS said Monday. That’s the highest in more than three years, and better than estimates. The non-manufacturing gauge touched 56.4, up slightly from October.
The PBoC added CNY200 billion in MLF Monday, a welcome move and arguably a “surprise” coming as it does after the central bank already (more than) rolled maturing funding this month. The rate was unchanged.
Tensions with the outgoing Trump administration continue. Reuters said Monday that both SMIC and CNOOC will be added to the list of blackballed Chinese military companies, bringing the total number of designated entities to nearly three-dozen. This comes two weeks after Trump issued an executive order banning US investments in Chinese companies owned or operated by the PLA and amid what sources have variously described as an accelerated push to turn the screws on Beijing ahead of Biden’s inauguration.
Shares of CNOOC plunged Monday on the news. “There will be huge impact on the company because the oil-and-gas value chain involves a lot of US companies from upstream, mid-stream all the way to the gas side,” one analyst told Bloomberg. “This also means they cannot procure parts and software from US companies.” A subsidiary also saw its shares dive.
“The upcoming move, coupled with similar policies, is seen as seeking to cement Trump’s tough-on-China legacy and to box Biden into hardline positions on Beijing,” Reuters, which initially reported the plans, said, in the course of reminding everyone that according to their reporting, the Trump administration is also “close to declaring that 89 Chinese aerospace and other companies have military ties, restricting them from buying a range of US goods and technology.”
SMIC has been in Trump’s crosshairs for months, at least. The company continues to maintain it has no ties to the PLA. The latest move would apparently add insult to injury following the Commerce Department’s broadside three months back.
Again, this should be viewed in the context of the Trump administration attempting to effectively tie Biden’s hands on diplomacy. The assassination of Iran’s top nuclear scientist last week, presumably by Israel, is now widely viewed as part of a similar effort.
In other news, OPEC+ is still locked in debate over whether to delay a planned output increase, and China’s spat with Australia turned particularly caustic.
Ultimately, November will be remembered as one of, if not the, best month on record for stocks.