The markets started the week in Asia on Sunday night buoyed by the fact that Joe Biden looked to have secured the Presidency in the US lifting all major indices. Whilst at this time his title still remains officially unconfirmed all major news agencies are now recognising he will ultimately take the White House from Donald Trump. With Trump still failing to understand how the democratic voting system his government put in place works, he remains resolute that cheating had taken place, allowing Biden to have late surges in votes across the country. Whilst logically postal votes (typically supportive of Biden) take longer than polling station votes (more supportive of Trump) this was in hindsight always going to be the case.
Generally markets are fearful of contested elections, but the incredibility of Trump's claims with a distinct lack of substance, leaves few with any view other than an eventual Biden win. As such the US markets and markets of countries that had experienced fraught trading relationships with Trump (China, Mexico, Canada and Europe) saw stocks and currencies significantly appreciate as the risk haven US Dollar took a tumble. However with the election contention seemingly out of the way the focus was always going to drift towards a breakthrough in a potential vaccine and late Monday afternoon Pfizer and Biontech announced that they were in the final stages of a vaccine solution which was 90% successful a percentage way higher than even the more optimistic could perhaps have anticipated.
With a market underweight in equity investment prior to the election and fearful of the escalation of Covid across the western world, the vaccine news brought stocks sharply higher. Suddenly, the stay at home staples of Zoom and Peloton lost popularity as stock pickers rotated back into old economy favourites buoyed by the thoughts of a potential return to normalisation as we saw a record one week flow into equities. Obviously this news and the fact many other drug companies are alluding to immanent completion of vaccines will likely push stocks higher into Q1 2021.
But in the short term, there does still remain headwinds. Firstly, whilst the Presidency race seems run, the transition of power is a lengthy process. With no immediate relief package looking to be agreed until Biden is sworn in, and the trajectory of new cases in the US just at the beginning of the scale of infection seen in Europe and the UK in the second wave it looks like it will be a bleak winter as we wait for the finalisation, production and distribution plan for a vaccine. Indeed across Europe infection rates seem to be topping out, but at critical levels with economic damage that could hamper for years to come.
In the UK, it feels like groundhog day when it comes to Brexit. With England in full lockdown and cases rising the developments Stateside and positive vaccine news has masked the lack of Brexit progress. With the mid November line in the sand date for a deal upon is, there remains little to no meaningful progress. As Boris bill failed in Parliament and with the added weighted pressure of incoming Biden being adamant he won't offer a US/UK trade deal if the UK breach the Irish Good Friday agreement, the pressure is on Boris. For this reason, it seems almost inevitable that concession is given by the UK to formulate a deal, perhaps not within the timescales which are solely set by Westminster. But AGAIN, the next week will be crucial in the Brexit saga with the UK hoping, but not expecting that the PM can impress at this late stage. The markets seem to be pricing in some form of deal as the pound hovers around the 1.3200 level against the US Dollar, with the Footsie also benefiting enormously from the stock and Oil related pick up seen this week.
The Week Ahead:
Monday - Japanese GDP comes in the early hours of Monday before Industrial Production, Retail Sales and Unemployment numbers from China. The ECB deliver their Financial Stability Review in the european session with ECB President Lagarde due to also speak. In the US session we get Empire State Manufacturing and the Fed’s Clarida and UK MPC member Haskell speaking.
Tuesday - Firstly, we get the minutes of the Australian RBA’s MPC meeting. A quiet morning is followed by a busy afternoon, with UK MPC’s Bailey and Ramsden speaking and Retail Sales from the US, and laterly the RBA’s Lowe and Kent both speaking.
Wednesday - Inflation data dominates the day with numbers from Europe and the UK in the morning and Canada in the afternoon. UK MPC member Haldane and the Fed’s Williams are also speaking.
Thursday - First comes Australian Employment/Unemployment data before UK CBI Industrial Orders and Eurozone Current Account data. In the US Session we get Philly Fed Manufacturing data and Weekly Unemployment numbers from the US. THe ECB’s Christine Lagarde speaks at 3pm.
Friday - UK GFK Consumer Sentiment, Aussie Retail Sales and Japanese Manufacturing PMI come very early on in the Asian session. In the European session we get German PPI, UK Retail Sales and Public Sector Net Borrowing before Lagarde speaks at 8.15. In the US time zone we get Canadian Retail Sales and the Fed’s Kaplan speaks.
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