US CPI rose in December from 1.16% to 1.29%; core CPI unchanged from 1.65% to 1.61%. Prices of clothing, transportation, and energy are down year-over-year due to pandemic restrictions. We expect more vaccine rollouts and upcoming stimulus measures will bolster prices throughout the year.

Energy price rose by 4% month-over-month as oil price recovered. Recreation declined by 0.3% month-over-month.

Export value hit a new high in December, growing by 12% year-over-year for 2 consecutive months. It's expected to continue growing for:

1. Work-from-home trend during COVID times leads to high demand for computers and electronics. Having risen for 10 consecutive months, exports of electronics and AV/ICT devices increased in December by 22.2% and 17.6%, respectively.

2. Conventional industries, on the other hand, are also increasing as demand recovers. Primary metals up by 2.7%; machinery up by 5%; plastics and rubber 15.5%; chemicals 6.1%; electric machinery 10.6%.

Growth in the electronics industry has offset the slump in the conventional industries last year. Export value continues to grow and reached US$345.2 billion last month. Trade surplus expanded to US$58.5 billion. In 2021, Taiwan exports are expected to continue rising as tech industry keeps expanding and manufacturing industry begins to replenish inventories.

US stocks declined and US dollar rose to 90.5 last night as Democrats planned to vote on Wednesday to impeach President Trump; Europe, US and Japan reported record number of confirmed cases; inflation expectations surged; CBOE put/call ratio decreased to 0.77.

The opportunity costs of buying stocks are increasing as 10-year Treasury yield rose to 1.15%, the highest since the beginning of the pandemic. Excessive optimism triggered the dollar to inch higher and US stocks to dip. We believe the worldwide economy is still on track to recovery and stocks are still more valuable than bonds at the moment. As developed countries continue to inject liquidity to the market, along with good economic fundamentals of the emerging markets, a moderate correction in the stock market helps to shake off excessive optimism.

US nonfarm payroll decreased by 140,000 in December, unemployment rate remaining flat at 6.7%. Labor participation rate, 61.5%, stands in line with market forecast.

Most industries registered positive job growth, except leisure, hospitality, education, and health services; professional and business services registered a solid increase of 161,000, showing that companies are in the process of reopening.

Retail sales and job growth slowed down in December due to the resurgence of the pandemic. Manufacturing PMI, however, continues to grow, suggesting inventory replenishment is underway with low inventories and high new orders.

The US economy (namely, consumption) is expected to be fueled by three major transferrable incomes included in the new stimulus bill: cash payment, unemployment aid, and small business relief, on condition that the service industry will gradually reopen and return to normal operation.

US ISM manufacturing PMI rose in December from 57.5 to 60.7; non-manufacturing (service) PMI rose from 55.9 to 57.2

In the manufacturing sector, new order and production keep accelerating, as inventory remains low. In the service sector, new order and business activity have been growing for 7 consecutive months, suggesting high demand. Real estate and technology industry reported low inventory sentiment. Employment in the service sector declined from 51.5 to 48.2, as some states imposed stricter pandemic restrictions.

With employment in the service industry dropping in December, the official nonfarm payroll due to release tonight is expected to disappoint. For the longer term, however, services are expected to rebound during Q1.

ADP private nonfarm employment decreased by 123 thousand people in December, after previously increasing by 210 thousand people in November. We remain optimistic for the first half of 2021 with the passage of the new stimulus package. Employment in the manufacturing industry slows down in the winter. Overall employment declines as holidays are over and due to pandemic restrictions. Forecast for the official nonfarm payroll this Friday is an increase of 71 thousand people. With the latest ADP release, official nonfarm payroll is likely to disappoint. Looking at the longer term, though, we believe with low inventories of goods and the new stimulus, the economy is driven by good fundamentals.

Taiwan and China stocks shine on good fundamentals and affluent liquidity.

Taiwanese TAIEX closed at record high, breaking through 15,000 points. TWD/USD also rose to 27.96. On the same day, Shanghai stocks and Shenzhen stocks rose by 0.73% and 2.16% respectively, reaching 5-year highs.

Taiwan

Export orders grew by 29.7% in November. Value of electronics exports and ICT device exports also hit record high. M1B - M2 has widened to 7.6%, providing momentum for stocks and forex to rise.

China

Shanghai containerized freight index set record high. Domestic and overseas demand continue to grow. During the Central Economic Work Conference last December, the Chinese authority stated that they will keep their macroeconomics policies “continuous, stable, and sustainable” without “making a U-turn”.

OPEC+ decided last night to progressively increase output by 75,000 bpd for the next two months, bringing current oil cut level down from 7.2 million to 7.125 million bpd in February and to 7.05 million bpd in March.

While Russia and Kazakhstan will be responsible for the increase, Saudi Arabia, on the other hand, volunteered to reduce output by 1 million bpd on top of the oil cut agreement. WTI jumped to $50 per barrel intraday, rising by nearly 5%.

During the first OPEC+ meeting held on January 4th for 2021, Saudi Arabia and Iraq suggested the cartel should keep output at current level, while Russia backed increasing output by 500 thousand barrels per day. Based on US Energy Information Administration's estimates, with an output increase of 500k bpd in the first quarter of 2021, crude oil is still undersupplied by 1.8 million, 650k, 400k, and 160k bpd respectively from Q1 to Q4 this year.

UK imposed full lockdown on January 4th. British pound dived on the news, declining by 0.81%. See GBP/USD below. All schools need to close and people stay indoors. Indoor dining is prohibited. Non-essential businesses need to close, too. UK reports nearly 50 thousand new cases and hundreds of deaths everyday. Daily death count is increasing.

The latest oil inventory data is in line with the seasonal trend. EIA crude oil inventory has decreased for 3 months straight, with a decline of more than 6 million barrels in the week ending on December 25th. Demand for gas was strong during holidays.

The next OPEC+ ministerial meeting will be held on January 4th. Although it’s widely expected that the cartel will increase output by 500 thousand barrels starting in February, progressive increases in production are unlikely to weigh on oil price.

Total new infections reached record high of 140,000 in a single day. Stringency index has been on the rise since November to tackle a new wave in the cold season. After a new strain was found in the UK, Europe reactivated border control and restrictions.

The rollout of vaccines has been slower than expected in not only the US, but around the world. We gathered a new chart of the percentage of people vaccinated to offer an insight to how long the restrictions will go on in 2021. The faster people are getting vaccinated, the less pandemic restrictions and economic impact there will be.

The Lower House approved on Monday the Cash Act. The new bill, which includes a direct cash payment of $2,000 to almost every American, is now entering the Senate. Republican Senate leader Mitch McConnell said the Senate will “begin in process”, refusing to pass the bill more quickly. According to estimates, the cash check totals to $463.8 billion.

While Republican Senators remain divided on the Cash Act, President Trump has signed a new stimulus package of $900 billion on December 27th, which is bound to bring fresh momentum for consumption growth and to the economy, with or without the Cash Act.

• Taiwan’s economic monitoring scores in November rose to 30 from 28, maintaining stability.

• Leading indicator index rose in the same month to 107.5 from 106, rising for 7 months straight. Lagging/leading indicator index quotient fell for the 8th month to 0.91.

Taiwanese stocks and its currency are growing fast because:

1. Inventory replenishment is underway
The gap between backlog of order index and customer’s inventory index, both under PMI, has widened, suggesting a large incoming of new orders and low inventories at the customer’s end. Low inventory creates momentum for manufacturing output to increase.

2. Trade is expanding
Export orders in November has risen by 29.8% year-over-year.

3. M1B - M2 reached 10-year high The difference between M1B and M2 reached 10-year high, suggesting the liquid capital in the market is growing faster than time deposits.

Just a week before Brexit transition period ends, UK and the European Union have finally struck a free-trade deal, which imposes zero tariffs on goods and awaits to be approved by the parliaments from both parties.

The “Canadian style” trade deal means goods imported from/into the UK won’t be taxed but inspected at the border, whereas services imported will be restricted. (Service trade accounts for 80% of UK’s GDP.)

The British Parliament will vote on the trade deal on December 30. After the EU Council will authorize the deal as of January 1, the EU Parliament will vote. British Pound rallied by 0.46% to 1.355 USD.