Close Calls For 2020

We are now heading into what would typically be a quiet time of year when everyone spends time with their loved ones and market activity is more muted. This isn’t a normal year, though, and while volumes may be low, activity will be anything but.

There are key deadlines on both sides of the pond as the year 2020 quickly draws to a close. The Brexit talks continue as the EU and UK race to hammer out an agreement ahead of the December 31st deadline.

In the US, lawmakers are trying to bridge the gaps and approve a massive stimulus bill that would also provide funding to stave off a government shutdown. On the fundamental front, it’s a quiet week, with the focus on GDP reports in the US, the UK and Canada.

Here are the key market moving factors for the week:

 The US

• US PMIs remained well into expansionary territory, with Manufacturing PMI coming in at 56.5 and Services PMI at 55.3. However, the Philly Fed Manufacturing Index slowed to 11.1, down from 26.3 beforehand.
• The Federal Reserve maintained its asset purchase program at the current level of $80 billion/mth. In addition, the Fed provided additional guidance which can be viewed as a dovish signal. Unemployment claims were up sharply for a second straight week, rising to 885 thousand.
• The US senate passed a one day temporary funding measure to keep the government open through Monday. If both houses of the Congress do not vote in favour of the spending bill, the Congress would have to pass a continuing resolution to avert a government shutdown.

 EUROPE

• German and eurozone Manufacturing PMIs improved in November and remain well into expansionary territory, with readings in the mid-50s range. The services sector remains in contraction, as the German and eurozone PMIs came in around the 47 line.
• Eurozone inflation remains at very low levels. Headline CPI fell by 0.3% in October, marking a fourth straight decline. Core CPI recorded a gain of 0.2%.

The UK

• The markets were glued to the Brexit talks last week. The talks continued as a Sunday deadline came and went, which boosted the pound. However, the rally fizzled on Friday, an agreement remained elusive. UK Employment numbers were a mix.
• Wage growth rose to 2.7%, up strongly from 1.3% beforehand. Unemployment claims jumped 64.3 thousand, which was much higher than the forecast of 10.5 thousand. As well, the unemployment rate edged up to 4.9%, up from 4.8%
• There were no surprises from the BoE, which made no changes to the Official Bank Rate of 0.10% or to QE.
• The bank was expected to remain on the sidelines while trade talks continue between the UK and the European Union
• With more regions being added to the list of tier three and households being allowed to mix at Christmas, there’s a sense of inevitability about another lockdown in January, maybe going into February. Brexit is the key risk for the UK, with COVID vaccinations now under way.

JAPAN

• Japan’s Cabinet office approved a record-high budget worth JPY106 trillion for fiscal year (FY) 2021-22 on Monday, Reuters reported, citing a draft of the budget.
• 41% of the budget will be funded by debt, up from circa 32% this fiscal year.
• Japan sets record $52 billion military budget with stealth jets, long-range missiles.

AUSTRALIA

• Australian equities under pressure on Friday after COVID-19 outbreak in Sydney. States have rapidly reimposed movement restrictions with New South Wales.
• Both Australian equities and the Australian dollar could face significant pressure next week if the COVID-19 situation in Sydney escalates rapidly.

CHINA

• China Loan Prime Rates decision Monday. It would be a huge surprise if rates were cut with PBOC keeping liquidity tight as part of the deleveraging process. We expect the next move in rates to be higher at the end of 2021.

NEW ZEALAND

• Australia/New Zealand travel bubble already in doubt after Sydney COVID-19 outbreak. Potentially weighing on consumer discretionary and leisure/tourism equities.
• The New Zealand dollar remains very strong as a proxy to the 2021 global recovery.
• Country effectively shuts for two weeks from this Thursday.

Market Overview:

 Gold

• Gold prices seesaw around $1,885, following the $5 move at the week’s start, during the early Asian session on Monday.

 Oil

• Oil prices dropped about 3% on Monday as a fast-spreading new coronavirus strain that has shut down much of the United Kingdom fuelled worries over a slower recovery in fuel demand amid tighter restrictions in Europe.
• Brent crude slid $1.54, or 3.0%, to $50.72 a barrel by 0510 GMT after rising 1.5% and touching its highest since March last Friday.
• S. West Texas Intermediate (WTI) crude was down $1.42, or 2.9%, to $47.68 a barrel after also climbing 1.5% on Friday to its highest level since February.
• Monday’s declines came after oil prices marked seven straight weeks of gains last week as investors focused on the rollout of COVID-19 vaccines.

Below are the major market moving events for the week:

 All times listed are EDT

Monday

19:30: Australia – Retail Sales: seen to drop to -0.6% from 1.4% previously.

 Tuesday

2:00: UK – GDP: forecast to remain flat at 15.5% QoQ and -9.6% YoY.

8:30: US – GDP: predicted to have leaped to 33.1% from -31.4%.

10:00: US – Existing Home Sales: believed to have slipped to 6.70M from 6.85M.

 Wednesday

8:30: US – Initial Jobless Claims: to edge higher to 900K from 885K.

8:30: Canada – GDP: expected to fall to 0.2% from 0.8% MoM.

10:00: US – New Home Sales: probably dipped to 990K from 999K.

10:30: US – Crude Oil Inventories: anticipated to jump to -1.937M from -3.135M.

 Thursday

8:30: US – Core Durable Goods Orders: seen to decline to 0.6% from 1.3%.

Friday

Australia, Canada, Eurozone, Hong Kong, Mexico, New Zealand, South Africa, UK, US

 Christmas Day Holiday

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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