The decision by President Trump to allow the release of transition funds by the GSA was interpreted as a concession in any other words. That has given renewed momentum to the rally seen on Wall Street overnight, which was dominated by the vaccine rotation trade. The S&P 500 climbed 0.56%, but the Nasdaq only rose 0.22%, while the Dow Jones outperformed, climbing 1.0%.
The transition news has seen all three US index futures contracts jump higher, with the Nasdaq 100 climbing 0.50%, and the S&P 500 Futures and Dow futures leaping 0.80% higher. That has green-lit Asia to follow suit with Japan starring. Playing catch-up after a holiday yesterday, the Nikkei 225 has jumped 2.60% higher, hitting highs not seen since 1991. I should note though, that the Nikkei remains far from its all-time highs at just shy of 40,000 set in 1989, before Japan plunged into three lost decades of deflation. Retail participation has increased markedly in Japan in recent months, and its price action in recent times reflects the arrival of the FOMO herd so prevalent in American markets.
In South Korea, the KOSPI is 1.0% higher, with Bangkok climbing an impressive 2.60%. Singapore has climbed 0.70% and Jakarta by 0.60%. Malaysia is lagging, falling 0.55%, weighed down by political concerns, rising COVID-19 cases, and the heavy weighting of rubber industry and glove manufacturers, none of which are likely to outperform in a post-Covid world. In Australia, the pro-cyclical ASX 100 and All Ordinaries have climbed by 1.10%.
Greater China is the region’s underperformer today. Taipei has fallen 0.10%, but the mainland’s Shanghai Composite is 0.12% lower, with the Shanghai 50 down 0.65%. The CSI 300 is down 0.70% with Hong Kong almost unchanged, up just 0.10%. The underperformance of Taipei reflects geopolitical nerves as the Trump administration continues to actively engage with the island state, raising China’s ire. A substantial weighting in technology means the rotation into cyclical seen elsewhere will bypass it. China markets themselves continue to reflect concerns about the apparently imminent blacklisting of 89 China companies with ties to the military. With no clarity from the Biden camp over its future engagement with China, markets domestically are left to contend with the Trump administration which seems intent on making life as difficult as it can for China in its last weeks.
The outperformance by Thailand, Japan, Singapore and Australia today suggests that the cyclical rotation trade, powered by vaccine promise, is back to the front of investors’ minds. Europe should also open higher today for much the same reasons, although the carnage wrought by Covid-19 on domestic consumption will temper those gains.