Should we care about who wins in Taiwan?

Thoughts of the Day

The Taiwanese presidential elections will be held on Saturday, and though it’s not on the radar of the world at large, it will have big repercussions on China-US relations in the years ahead. It is hard to guess who will win but it is important to be aware of the risks of the various scenarios. With semiconductor chips being critical for the success of nations in the years to come, Taiwan will have increasing importance for the world at large.

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Day Ahead

Nothing noteworthy on the horizon today.

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What Happened Yesterday

Market Movements as of New York Close 9 Jan 2024
  • The Euro area unemployment rate came in at 6.4% in December, lower than expectations and the previous print of 6.5%. However, market reaction to the print was muted.
  • The Australia Monthly CPI (Consumer Price Index) Indicator showed that prices rose +4.3% Year-on-Year in November (vs +4.4% expected), down from 4.9% in October. It was the 2nd straight month of decline in annual inflation and the softest pace since January 2022. The AUDUSD reaction to the data release was relatively tame.
  • The US Treasury Yield curve inversion narrowed to 0.34% as the US 2-year bond yield remained at 4.36% while the 10-year yield rose +0.01% to  4.02%.
  • The US stock futures traded sideways through the Asian trading session. However, when the London trading hours began, the US stock futures started to trade lower with the S&P 500 futures down -0.52% on the day when the New York session began.
  • The US stock market opened lower from Monday. It then traded higher through the New York session, effectively erasing some of the losses made premarket. Consequently, the S&P 500 was a mere -0.15% lower on the day (high: +0.04%, low: -0.70%), the Dow Jones fell -0.42% (high: -0.35%, low: -0.82%) while the Nasdaq gained +0.17% (high: +0.37%, low: -0.82%). 
  • The crypto market saw a rocky day with Bitcoin having an intraday high of +2.15% and intraday day low of -4.26% because a hacker used the US Securities and Exchange Commission’s (SEC) X (formerly known as Twitter) account  to announce the false approval of Bitcoin ETFs. (more details in headline 2).
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Headlines & Market Impact

US seeks to jump-start production of higher-energy uranium now made in Russia

Notable Snippet: The U.S. is seeking bids from contractors to help establish a domestic supply of a uranium fuel enriched to higher levels for use in a next generation of reactors, a fuel currently only available in commercial levels from Russia, the Department of Energy said on Tuesday.

The DOE is seeking contracts for a maximum of 10 years from enrichment service companies to produce so-called high assay low enriched, or HALEU, uranium fuel that is enriched up to 20%, compared with traditional uranium fuel used in today’s reactors of about 5%.

The department has about $500 million in funding for HALEU production from the 2022 Inflation Reduction Act, and sought proposals late last year for additional HALEU production services. The program could be expanded in coming years, depending on congressional appropriations.

HALEU is expected to be needed for a planned generation of reactors in the works by companies including X-energy and TerraPower, but output has been delayed as the reactors are not yet built.

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SEC probing fake post on its X account, bitcoin ETFs not yet approved

Notable Snippet:  The U.S. securities regulator said someone briefly accessed its X social media account on Tuesday and posted a fake message saying it had approved exchange traded funds for bitcoin, a move that has been eagerly awaited by the crypto industry.

The Securities and Exchange Commission (SEC) said it has not yet approved spot bitcoin ETFs. The SEC’s account on X, the platform formerly known as Twitter, had been compromised briefly by an unknown party after about 4 pm Eastern time but “unauthorised access has been terminated,” the agency said.

It will work with law enforcement to investigate the hack and “related conduct,” the SEC said.

X’s head of business operations, Joe Benarroch, said in a statement that the SEC’s account was secure and the company was investigating the “root cause” of the account compromise.

The unauthorised post said the SEC had granted approval for bitcoin ETFs on all registered national securities exchanges and included a picture purporting to quote SEC Chair Gary Gensler. The price of bitcoin rose after the post, which was picked up by Reuters and other news media that monitor the SEC’s account.

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Taiwan election: who are the candidates and what is at stake?

Notable Snippet: The frontrunner is Lai Ching-te from the incumbent Democratic Progressive party (DPP). Lai is vice-president to Tsai Ing-wen, who is stepping down because of term limits. Lai, and his running mate, the former Taiwanese envoy to the US Hsiao Bi-Khim, represent the continuity choice.

The DPP believes that maintaining Taiwan’s peaceful status quo relies on building stronger relationships on the world stage, particularly with the US. Some analysts think Lai is not as well-liked in Washington as Tsai or Hsiao, which explains one of the reasons why Hsiao was picked as his running mate, despite being subject to Chinese sanctions. Lai is openly despised by the Chinese government, which has called him a “complete troublemaker”.

The main opposition candidate is the avuncular Hou You-yi from the more conservative Kuomintang (KMT). Hou is a former police officer and popular mayor of New Taipei City. The KMT, which has long struggled with an image of elitism, hopes Hou’s working-class roots will appeal to a broad range of voters as the party struggles to unite its older base with young Taiwanese.

Hou argues that increasing economic links and opening dialogue with China is the best way to preserve peace, although he has rejected the idea of Taiwan independence and the “one country, two systems” model that has been suggested by the Chinese Communist party, leaving some voters unsure about where he stands on the China issue.

The disruptor in the race is Ko Wen-je of the newly formed Taiwan People’s party (TPP). Ko is a popular former Taipei mayor who was a surgeon before entering politics in 2014. He has tried to leverage his scientific background to present himself as a technocrat who would be a safe pair of hands in the president’s office.

His medical credentials have not always played well, however. In October, he caused an outcry by likening cross-strait relations to prostate cancer treatment. He said patients with prostate cancer could often live well for many years, while removal of the prostate “can cause an even quicker death”. It was supposed to be a metaphor about the importance of coexisting with your enemies, but it was widely criticised – including by the Taiwan Urological Association.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord