Manchin & Omicron Send Asia Lower

Key News

Risk-off reigned supreme overnight as the global economy faces the headwinds of lockdowns driven by the spread of omicron and Joe Manchin busting Biden’s $2 trillion Build Back Better Bill. Volumes were light as investors look to put 2021 in the rearview mirror though China and India had moderate volume days.

The PBOC’s mid-morning cut of the 1- and 5-year loan prime rates (LPRs) to 3.8% and 4.65% from 3.85% and 4.65% was a non-event for markets even though it frees up an additional $188 billion for banks to lend. The cut, which follows a cut to the reserve requirement ratio (RRR) last month, also highlights how much more room for stimulus China has due to the PBOC’s historical conservative stance as we have likely entered an easing cycle for China.

Growth sectors such as the clean energy ecosystem were hit hard overnight though value sectors were hardly spared from the downdraft. Mainland real estate gained +0.52% though Hong Kong real estate fell -4.2% as foreign investors focus on the debt structuring plans in the works for Evergrande and others.

Shanghai fell -1.07%, Shenzhen fell -1.77%, and the STAR Board fell -2.51%. Northbound Stock Connect volumes were moderate as foreign investors sold -$152 million worth of Mainland stocks.

How ugly was Hong Kong today? Out of the top 100 most heavily traded stocks, only 7 were positive. The Hang Seng was off -1.93% on volumes that were -23% lower than Friday, which is only 73% of the 1-year average. Hong Kong-listed internet stocks were off across the board though Tencent and Meituan saw net buys from Mainland investors via Southbound Stock Connect. We also had positive sentiment coming out of Alibaba’s investor day.

Evergrande’s June 2022 bond was off -$0.61 to $18.85. Meanwhile, the April 2022 bond is not showing any trade data and no volume, which is not surprising since the bond’s par value is less than $2 million.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.38 versus 6.38 Friday
• CNY/EUR 7.20 versus 7.20 Friday
• Yield on 1-Day Government Bond 1.44% versus 1.45% Friday
• Yield on 10-Year Government Bond 2.85% versus 2.85% Friday
• Yield on 10-Year China Development Bank Bond 3.09% versus 3.09% Friday
• Copper Price -0.39% overnight