Risk sentiment was generally muted to start a week that will feature key economic data and earnings reports, as well as the Fed’s first meeting since Democrats took control of the US Senate.
Officials in Hong Kong lifted a strict lockdown in the Yau Tsim Mong district after testing some 7,000 people for COVID. The draconian containment measures spooked markets on Friday, but only 13 infections were found. Most of the neighborhood’s residents were tested. The city also approved Pfizer-BioNTech’s vaccine. The first shipment (around 1 million doses) will arrive from Germany next month.
Hong Kong shares dutifully resumed their rally, with the Hang Seng closing above 30,000 for the first time since May of 2019 (the month Donald Trump blacklisted Huawei, escalating Sino-US tensions). Tencent is on an incredible run. The shares rose 11% Monday. It was the best session in more than a decade.
Some short-dated calls jumped by nearly 120,000%. Mainland money poured into Hong Kong shares over the past several weeks, and according to Bloomberg, around 25% of it went into Tencent, whose shares have added more than a quarter-trillion in market value so far in 2021.
Elsewhere, business confidence in Germany missed expectations. Ifo was weak across the board for January. The headline missed (90.1 versus consensus of 91.4) and both the expectations and current conditions gauges declined.
Commenting, Ifo President Clemens Fuest said “the second wave of coronavirus has brought the recovery of the German economy to a halt for now.”
“Looking ahead, the stricter lockdown since mid-December will clearly leave its mark on the German economy in the first quarter,” ING said Monday. “The closing of schools and its indirect impact on worked hours and productivity should weigh on economic activity [while] the reversal of UK stockpiling in Q4 as well as ongoing lockdowns in many other neighboring countries does not bode well for exports going forward.”
GDP data out of Europe’s biggest economies is due later this week.
A few days ago, Germany slashed its economic outlook for 2021. Europe’s largest economy is now expected to grow 3% this year, versus the 4.4% projection from October.
On Monday, Reuters cited a draft prepared by the economic ministry in reporting that Germany’s economy likely won’t hit pre-pandemic levels until midway through 2022. The deficit in 2021 is seen at 7% of GDP.
In the US, Joe Biden is still struggling to get GOP lawmakers onboard with his $1.9 trillion stimulus plan. Generally speaking, myths and misconceptions about federal government financing as well as Republicans’ penchant for rediscovering their inner budget hawks whenever there’s a Democrat in the White House, will together present a high hurdle. Bernie Sanders is prepared to push through some measures in Democrat-only fashion if necessary.
Remember, the GOP cared nothing about the deficit prior to COVID — all that mattered were the tax cuts and staying out of Trump’s Twitter crosshairs.
Commenting Sunday, Mitt Romney said “it’s important that we don’t borrow trillions of dollars from the Chinese for things that may not be absolutely necessary.”
One could scarcely find a more misguided, ridiculous soundbite than that.
Oh, and Merck decided to pull the plug on development of its two COVID vaccines. The early trial data indicated they didn’t generate comparable immune responses to natural infection or existing vaccines.