Asia Market: Vaccines in the driver’s seat

Market Analysis / 7 Min Read
22 Jan 2021

Market highlights 

  • Advances on US stocks appear to have reached a mini cyclical fatigue point
  • Focus shifts to earnings with two hectic weeks ahead
  • Pace of vaccination seems set to be the key driver for risk markets throughout 2021
  • Mobility restrictions over Lunar New Year travel in China weigh like an anvil on oil
  • Gold bears enter a temporary state of hibernation


Amid a highly constructive risk backdrop – floated on hopes of massive Democratic dirigible stimulus air balloons – advances on US stocks appear to have reached a mini cyclical fatigue point, exacerbated by reports that China is implementing more mobility restrictions into the Chinese New Year holiday.

Restricting travel ahead of the Chinese New Year holiday to persons acquiring a negative Covid-19 test card underscores the severity of the recent uptick in infection number in the world’s second-largest economy. 

On the flip side, mega-cap tech and the "stay at home" basket is acting better again with investors easing back into the comfort of their cushiony living room recliner, recognizing their reopening optimism could still run into an extended period of turbulence. Netflix is the ultimate stay-at-home bellwether and, unsurprisingly, it seems lockdowns and TV go hand in hand. Overall, it looks a bit quieter as the focus shifts to earnings with two hectic weeks ahead.

The lockdown in China has understandably raised some concerns among investors who, after a slow start to the global vaccine rollout, are debating how quickly economies can vaccinate the most vulnerable and start returning to business as usual. The pace of vaccination may ultimately be the key driver for risk markets throughout 2021.

Investors remain precariously perched on the vaccine front while optimistically hoping for a "heralds of Spring" type reopening. If the vaccination rollout remains on cue, governments are likely to start lifting economic and life restrictions once the most vulnerable 20-25% of the population are vaccinated during Spring; at that point, hospitalizations and fatalities should drop dramatically. 

The current US pace of over 800k doses administered per day is on track to reach 15m+ vaccinated in January, though that’s well below the original government estimates. US states have issued just 40% of the allocated supply. The current number of assigned US doses points to the potential for the pace to double, though bottlenecks remain; the hope is that the Biden administration might diffuse the traffic jam with better logistical coordination.


Without question, Europe's major economies are struggling in stormy seas. The ECB’s "compass and anchor" approach leaves investors frustrated, expecting more financial precision if not flat out dovish guidance from Europe's central bank. 

Oil Markets

Oil struggled somewhat and failed to move convincingly higher overnight, despite a lower dollar.

With positions stretched and some "long in the tooth", Brent had difficulty staying above $56.00 amid profit-taking, along with some hedging activity via WTI producers as it becomes increasingly evident that 1Q21 demand is softer than anticipated, impacted by lockdowns across the northern hemisphere. 

But the news of further mobility restrictions over Lunar New Year travel in China weighs like an anvil around the markets as this could impact oil demand from the country. Indeed, investors are struggling to see through short-term pain for long-term gain heading into the weekend as Covid case counts in China are the most significant demand concern for traders. 

The weekly DOE oil stock report will be released Friday, two days late due to the MLK holiday and the inauguration. The API is still the only read from Oil Town USA. With much of the positive vibes around stimulus and Saudi Arabia voluntary production cuts in February and March in the price, traders are looking for the next positive – likely on the vaccine rollout’s speed to sink their teeth. 

Currency Markets

The USD is extending the modest decline seen so far this week, but is remains unchanged from the level it finished 2019 at. The initial enthusiasm for the USD this year, built on tapering talk from some Fed officials, has begun to wither. In part, this is due to push-back from Fed Chair Powell's rhetoric, which has underlined that a debate about tapering timing is premature. But, significantly, with the Fed now in black-out mode ahead of the FOMC meeting next week, the void has been filled with a familiar return to risk appetite as the driver, where commodity and risk betas remain in play (AUD, NZD and CAD).


US data releases were constructive but the USD failed to hold onto any gains, suggesting the market at least for now has moved on from taper talk. So, traders veered back on the bearish US dollar path, thinking the Democrats’ everything-including-the-kitchen-sink fiscal stimulus policy approach is terrible for the US dollar. 


The EUR bears were disappointed with the ECB's Legarde playing it by ear. For the EURO, there are two critical policy clarifications. Firstly: Yes, ECB is watching the Euro, but as ever with a view to its influence on inflation forecasts. Secondly: Yes, the PEPP is flexible in terms of how the facility is allocated and whether it is all used up. If the economy recovers quickly, it might not be; if the economy struggles, it will be.

The ECB was not overtly dovish for two main factors:

  • The ECB indirectly implies that sovereign yields are low enough, and the monetary policy's real task has switched to policy transmission.
  • The ECB wants to have the option of being less sensitive to an increase in yields when this becomes appropriate.

To put this in easily digestible terms, while the US policymakers are veering on the path of maximum policy overdrive, the ECB remains anchored but flexible. So, with the policy divergence theme in full retreat, the EURUSD is moving higher for now.


With the UK at the head of the G-10 class on the vaccine rollouts, Sterling is in lift-off mode as traders are starting to price real money adjustment piling back into underinvestment UK themes that have been in the tank since Brexit. The UK equity market has been one of the worst-performing major global markets since the Brexit referendum in June 2016, leaving valuations for UK equities relative to Europe at close to 20-year lows.

On the catch-up premise, the UK remains a favoured global equity markets strategy, particularly from an unhedged perspective. A large proportion of the return for international investors will come from the strengthening currency. When client banking is executed unhedged instead of fully hedged currency return strategies, it dramatically impacts real currency flow.


The market continues to price out rate cuts after BNM described the current policy stance as "appropriate and accommodative" with some now expecting the next policy move a rate hike as soon as the second quarter of next year.

The Malaysian economy was highly responsive to the previous relaxation in mobility restriction; the thought here is that once the MCO is fully rolled back at the end of February or sooner, consumers will do the bulk of the heavy lifting while the PERMAI relief package announced this week would provide an added tailwind. With inflation expected to rise this year – and even keeping rates unchanged – the inflation impulse offers some modest real easing.

Foreign Exchange Investors continue to focus on the bigger picture where oil prices should rise as we move toward herd immunity. Expectedly, this will provide a big lift to the ringgit via oil petrol dollars and foreign travellers’ demand for the ringgit. 

Gold Markets

Gold bears have entered a temporary state of hibernation. The yellow metal seems to be past the lows for the month as the current "everything-but-the-kitchen-sink" policy backdrop and FX tailwinds for precious metals remains favourable.

Resistance lies at the 100-day moving average at $1,884, but the market needs a few more ounces of policy conviction for a break higher. Treasury yields should dictate the direction of bullion and a rally could quickly ensue if further inflation expectations kick in. 

For more market insights, follow me on Twitter: @Steveinnes123 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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