There has been plenty of positive vaccine news this week which has buoyed the markets, giving tangible belief that normalisation from the pandemic can be achieved next year. With the markets looking over at China, where economic growth and industry are thriving, there is a feeling that could be achieved elsewhere. With the Western stock markets having enjoyed a couple of strong fightback weeks, in this last week we saw a more cautionary tone in price action. The battle seems to be between are we investing to buy the longer term positivity OR do we look at what's happening right in front of us at this moment.
In the US we are seeing the significant increase in cases reaching 185,000 daily new cases just yesterday, and they remain on a sharp trajectory higher, as partial and full lockdowns start to get initiated across some states including NYC and California. The near term outlook for virus impact looks bleak. If we add into that the fact the government, in the midst of a messy transition of power between Donald Trump's Republican party to Joe Biden's Democrat party seems incapable of putting politics to one side, and agree to a much needed relief package. Despite Trump retracting 3 of his legal actions having claimed the election process was rigged, he is neither gracefully conceding the election nor looking to step back from active leadership or decision making.
Last night we heard from Treasury Secretary Mnuchin that Trump's government plans to ask the Fed to return the unused Care Act funds and offer no extension to the Emergency Lending Program. This act was immediately questioned by the Fed, and whilst these provisions have not been utilised to date, every Central Bank needs an arsenal of options, particularly as it would appear the US has not yet reached the eye of the second wave pandemic storm. Such aggressive action would typically wipe roughly 1% off the stock markets, but after a mini wobble they again show resilience, firstly due to the fact Trump has lost credibility and its thought most actions authorised by him whilst still clinging to power this year will be unwound when Biden comes to power. Secondly and probably more importantly, there is an unquestionable bid tone to the markets, whereby even in a week where the market had opportunities to go down, the moves were never entirely sustained. The stay at home and tech stocks that had struggled in the last few weeks again came back into favour. Therefore if the delivery and distribution of a vaccine across the globe prove successful we could well see a continuation of the upward trend especially when the economic data signals normalisation.
Europe continues to struggle with the virus and whilst this week hasn't seen significant increases of cases in most countries, it has not significantly abated with more platoeing at high levels, this despite the fact that at the end of next week we will be closing in on a month of lockdowns. It's hoped that across the bloc, we start to see numbers declining as we move towards the Christmas Holidays. The Eurozone Recovery Fund is also causing the issues with Poland and Hungary vehemently objecting to the implications and obligations of the agreement capping the Euro's progress on the week at 1.1900 against the weakened (through risk) US Dollar.
Brexit progress also remains limited as deadlines continue to be pushed from week to week. There remains strength in the Pound despite the lack of progress with it probing the 1.3315 level against the US Dollar twice this week. With positive Retail Sales data today being the only real supporting factor of strength. There have been comments of positivity regarding the finalization of a deal, but they have been almost exclusively out of the UK camp with the EU still citing significant differences. Even despite EU members pushing Barnier for a no-deal plan and a delay and migration to online talks, due to a member of the EU team testing positive for the virus the pound remains resilient as we move into year end.
The Week Ahead:
Monday - With it being a bank holiday in Japan the first meaningful data comes in Europe with a day of PMI Services and Manufacturing data from France, Germany, Eurozone, UK and the US. In the US time zone we hear from UK MPC member Haldane before the UK Monetary Policy Report hearings.
Tuesday - German GDP and Ifo business climate hearings dominate the morning, with UK MPC member Haskell speaking and UK CBI data also coming later in the morning. In the afternoon US Consumer Confidence and the UK's Autumn Forecast Statement from Rishi Sunak.
Wednesday - First up we hear from the RBNZ’s Orr before CPI data from Japan. In the US session we get US GDP, Durable Goods, Wholesale Inventories and Weekly Jobless numbers. At 3pm we get Core PCE, Consumer Sentiment and Personal Income and Spending data.
Thursday - (US Thanksgiving Holidays) German GFK data starts the datacard as well as Eurozone Money Supply and Private Loans numbers. In the middle of the trading day we get ECB Monetary Policy Meeting Accounts.
Friday - With much of the US still on Thanksgiving holidays it will be another quiet data day. In the morning we get German import prices French Consumer Spending, Prelim CPI and GDP. From the UK we get the Nationwide House Price Index.
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