Hope,HongKongandKapra

Physicist Fritzof Kapra, in his book The Tao of Physics, writes about the Chinese philosophy of yin and yang. Yin and Yang can be described as forces counter to each other and always in an internecine embrace. The moot point which Kapra makes about the philosophy is that both the forces are always present and complete victory of one over the other is neither possible nor desirable. In the context of markets, the yin and yang can be replaced with “risk on” and “risk off”. These two competing forces with equally credible arguments keep the markets alive and the participants busy.

The markets of today are no different. The yin of vaccine hope is compensated by the yang of escalation in Sino US tensions. In other news around the world we also see that hope and optimism about opening of economies is fraught with fear about the second wave of virus infections. A delicate balance has been formed as of now.

As of the hard numbers, the Dow Jones was up 2.4% in trading yesterday. The S&P reached the important psychological level of 3000 during the day’s trade. The dollar index, US Yields also moved in a direction showing confidence in the recovery story. But the signs of trouble on the horizon remain as US escalated the rhetoric on Hong Kong. The US President said that he is preparing to take action against China over the issue of HK but gave no further details on what those actions could be. The onshore Chinese yuan fell close to 7.15 which is the lowest level in 8 months. The continued weakening of the Chinese currency as an indirect measure to support the country exporters has been one of the most hotly debated issues between the US and China last year.

In news from the UK the pound sterling jumped up owing primarily to the news of concessions given by the EU on the contentious issue of fisheries. Who and where one can fish in the international waters has been a long standing issue in the Brexit discussions. The Euro on the other hand stood mostly unchanged and will wait for the details of the economic package, contours of which are to be unveiled today.

Domestically, the rise in the number of cases has been a cause of concern. Apart from the virus, the issues to ponder over for Indian investors would be the onslaught of locusts in the northern plains affecting the crops and news of geo political tensions up north in the state of Ladakh. The Indian Rupee, though, has been in a stable range as the expectations about a number of big inflows on the back of major capital account transactions keep any rupee bears in check. The rupee trades currently at 75.74 down from yesterday. The 10 year benchmark bond trades at a yield of 5.97.