Asia shares losses as China’s economy rebounds

SYDNEY (Reuters) – Asian stocks cut their early losses on Monday as data confirmed the Chinese economy rebounded last quarter as factory output surged, helping in part to offset recent disappointing spending news of American consumption.

Chinese blue chips rose 0.8% after the economy would have grown 6.5% in the fourth quarter a year earlier, beating expectations by 6.1%.

Industrial production in December also beat estimates, although retail sales missed the target.

“Despite the latest drop in retail sales, we are seeing a lot of benefits for consumption as households reduce the excess savings they accumulated last year,” said Julian Evans-Pritchard, senior economist for China at Capital Economics.

“Meanwhile, the favorable winds from last year’s stimulus should keep industry and construction strong for a while yet.”

The MSCI’s largest Asia-Pacific stock index outside of Japan trimmed losses and fell 0.3%, after hitting a series of record highs in recent weeks. Japan’s Nikkei slipped 0.8% and moved away from a 30-year high.

E-Mini futures for the S&P 500 fell 0.2%, although Wall Street was closed for a holiday on Monday. EUROSTOXX 50 futures fell 0.2% and FTSE futures fell 0.1%.

The recovery in China was in stark contrast to the United States and Europe, where the spread of the coronavirus has marked consumer spending, underscored by dismal US retail sales reported on Friday.

There are also doubts about how much of US President-elect Joe Biden’s stimulus package will pass through Congress given Republican opposition and the risk of more grassroots violence when he takes office on Wednesday.

“The data calls into question the sustainability of the recent rise in bond yields and the rise in inflation compensation,” ANZ analysts said in a note.

“There is a lot of good news about vaccines and stimulus built into the stock, but optimism is challenged by the reality of the tough months ahead,” they warned. “The risk across Europe is that lockdowns will be extended, and US cases could increase dramatically as the UK variant COVID spreads.”

This will focus on earnings forecasts from the earnings of companies this week, which include BofA, Morgan Stanley, Goldman Sachs and Netflix.

Bad US data helped Treasuries reduce some of their recent steep losses, and 10-year yields were trading at 1.087%, down from last week’s high of 1.187%.

The more subdued mood in turn boosted the safe haven US dollar, catching up with a deeply short bear market. Speculators increased their net short dollar position to the highest since May 2011 during the week ended January 12.

The dollar index has duly strengthened to 90.816, moving away from its recent 2 1/2 year low at 89.206.

The euro had retreated to $ 1.2074, from its January high of $ 1.2349, while the dollar remained stable against the yen at 103.78 and well above the recent low of 102.57.

The Canadian dollar fell back to $ 1.2773 on the dollar after Reuters announced that Biden planned to revoke the license for the Keystone XL pipeline.

Biden’s choice for Treasury Secretary Janet Yellen is expected to rule out a search for a weaker dollar during his testimony in Capital Hill on Tuesday, the Wall Street Journal reported.

Gold prices were undermined by the rebound in the dollar, leaving the metal at $ 1,828 an ounce from its high of $ 1,959 in January.

Oil prices have collided with profit taking on fears that the spread of increasingly tight restrictions globally will hurt demand. [O/R]

Brent futures fell 52 cents to $ 54.58 a barrel, while US crude fell 44 cents to $ 51.92.