Markets remain buoyant in the face of the perceived political harmony brought by the transition of power from Donald Trump to President elect Joe Biden. This week through gritted teeth it would appear Trump is prepared to stand aside and let Biden take up the reins. As states across the US further confirm Biden's victory, Trump conceded that if the Electoral College confirms the Biden win, he will vacate the White House. We can safely say the markets are ahead of Trump himself in declaring the victor, with Joe Biden expected to offer a more globally minded vision, which is boosting the stock markets.
Following on the themes of the last few weeks stocks charge, as presidential harmony and the welcome options of vaccines that seem to be available, we continue to see rotation in stock investment. This has not significantly damaged the fastest horses of the tech market as may have been expected, instead it has brought record inflows into equities across the board as the bond market moves back to lower yields and Oil solidifies its recapture of the $40 per barrel to push to $46. Even in a week where it was forecast we could see an equity sell off into the month end, due to positioning, stocks made record highs in the US Dow Jones index peaking at 30,200, Nasdaq at 12,230 and S&P at 3,658. These record levels were too much for Trump to resist, and despite the street perception that these levels were in spite of him, not because of him, but he seemed intent on a last moment in the sun.
Whilst the future path seems one of optimism in the outlook of the stock market and broader economy in time the end of the week brought a more conciliatory tone as the pandemic worsened stateside and in areas of Europe bringing further lockdowns and extensions of existing restrictions. Despite global stocks surging 13% this month, there remains the very real near-term risk in front of much of the world and raising cases and a nagging doubt over vaccine effectiveness and speed of distribution cannot be ignored. In a week that saw Germany surpass 1 million cases in a country that has pro-actively tried to stop the spread of the virus, we look over at the US in Thanksgiving where air travel on the day ahead of the holiday was at the same level seen 2 years ago, as we await the footfall in shops over the holiday period, expectation is that there may not see such a significant dip and thus in a few weeks’ time this could severely impact infection levels.
In the UK whilst the Prime Minister Boris Johnson followed through on his promise to lift the lockdown of England, he remains under immense pressure from his own cabinet after placing 99% of the country within his highest two Tiers of restrictions. Whilst towards the end of this week, we have started to see infection levels start to lessen, confidence is in the Government's handling of the situation with much of Northern England still effectively closed off as we head into the first few weeks of December. On the Brexit front again progress is limited to soundbites of differing between “progressive” and “Outstanding differences”. This has the Pound firmly caught in a 1.3300-1.3400 range. Europe has more than just Brexit to deal with as Poland and Hungary continue to object to tying budget financing to rule of law standards, claiming it questions their sovereignty and hindering the passing of the EU recovery fund. Despite this with a theme of US Dollar weakness prevailing EUR/USD remains strong and pushing towards the ECB’s potential line in the sand 1.20 level.
Have a great week ahead.
The Week Ahead:
Monday - A busy start in Asia with Japanese Retail Sales and Housing Starts, Australian Inflation Gauge, Business Confidence from New Zealand and Chinese Manufacturing data. In the European Session we get German and Spanish CPI, Swiss Retail Sales and UK Lending and Mortgage data. Mid morning Christine Lagarder the ECB Head Speaks. In the US Session the main data is Chicago PMI and US Pending Home Sales. OPEC meetings also run all day.
Tuesday - Another busy Asian session with Manufacturing PMI from Japan and China followed by the interest rate setting decision from The Reserve Bank of Australia and statement. In the European session we get further Manufacturing PMI’s from Italy, France, Germany, Eurozone and the UK. In the US session Canadian GDP comes before US PMI numbers and Construction. There are Central Bank speakers later in the session with the ECB’s Lagarde and Fed’s Brainard.
Wednesday - Australian GDP and RBA Governor Lowe speech comes early as well as Consumer Confidence from Japan. In Europe, German Retail Sales and Spanish and Italian Unemployment numbers. In the US time zone we get ADP Employment and Fed speakers Quarles and Williams as well as a testimony from Head Jerome Powell.
Thursday - More PMI’s with the Service sector being in focus starting in China with Spanish, Italian, French, German, Eurozone and UK numbers coming later in the day. In the US session we get US Weekly unemployment before ISM Services PMI’s.
Friday - Australian Retail Sales comes first up. In the European session we get German Factory Orders, French Budget Balance and Italian Retail Sales. From the UK we get Construction PMI and MPC member Tenreyro Speaks. In the US session we get employment data from Canada and the US and laterly Fed Member Bowman speaks.
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