Share investors continued to express vaccine optimism in overnight trading. The rotation away from pandemic winners and back to re-opening winners rolled on, with the S&P500 index outperforming the tech heavy Nasdaq. However weaker European PMIs and concerns about potential Chinese bond defaults saw other markets diverge.
Bond traders were surprised by the default of the China state owned Yongcheng Coal and Electricity Company on November 10. Many Chinese corporate bonds enjoy higher ratings due to an assumption of a guarantee from their state issuers. The default contradicted that assumption, and even AAA rated Chinese bonds have suffered over the last two weeks. Combined with reports that Chinese holdings of US government bonds are at two year lows, the development is rattling bond markets around the globe.
The pressure on the safer haven bond markets spread to gold overnight. The yellow metal fell through US $1847, an important support level for the last 4 months. A stronger US dollar contributed to gold weakness, but couldn’t hold back cryptocurrency markets. Bitcoin hit a fresh 3 year high above US $18,000.
Services PMIs continue to illustrate the economic pain of lockdowns. German, French and UK service activity contracted in November. However, as with rising Covid-19 infection rates, investors looked through this bad news to a vaccine fuelled economic recovery in 2021.
Commodity markets generally disagreed. Crude oil rose, but most base metals fell after a week of good support. Commodity currencies also stalled, albeit at multi-month highs. These differing market leads make predicting Asia Pacific trading more difficult, although futures indicate a positive response from regional investors.