Market Commentary – December 16, 2020

Kevin Jock

16th December 2020

    Ahead of Wednesday’s final Federal Reserve meeting for 2020, Wall Street positions itself higher in anticipation of adjustments on bond purchases and pressure from Fed Chair Powell nudging the Senate towards a stimulus deal before the congressional session winds down this Friday. Two partisan issues have left progress on a new relief package moving at snail’s pace. A slimmed-down $748bn proposal has been introduced that separated out COVID liability shield and local aid in hopes to push through a last-minute deal. House Speaker Pelosi and Senate Majority leader McConnell are due to meet Tuesday evening, with the later previous floating a similar trim separated deal.

    Vaccination drive in Europe shook off rising infection woes and lifted European indices into positive territory. Despite plans from euro zone members to tighten restrictions before the new year, investors have narrowed their focus on vaccine optimism with the EU expected to approve a COVID-19 vaccine by January. Meanwhile, the FTSE advanced with Brexit talks moving forward on fishing rights. Downing Street has conceded the point that fishing vessels under a U.K. flag needs to be majority British owned.

    Overnight momentum from the U.S. session carried the S&P200 higher in Asia, however the benchmark lost all intra-day gains following an update with the WTO moving forward on Australia’s challenge on Chinas’ barley tariffs. Elsewhere, the Nikkei retreated and so too did the Hang Seng. Chinas’ antitrust crackdown from fines levied to probes soured investor sentiment in fear of Beijing tightening its’ grip over prominent tech firms.

    Positive steps towards stimulus, vaccine roll out and even Brexit saw outflow in the U.S. dollar in search for higher yielding currencies. The CAD closed at a multi-year record whilst AUD, EUR and GBP settled for multi-month highs. Mexico’s peso reversed previous days losses after the government pulled back a bill that would force the central government to purchase foreign currency, of which could potentially be originated from laundered activity. Alongside a steady appreciate in the yuan, China’s leaders are expected to convene this week to plan out economic goals for 2021. Loose policy to combat a virus pandemic saw China exhibit a v-shaped recovery and in turn major capital inflows. Elsewhere, gold and crude advances whilst bitcoin is about to break historic levels again.


Figure 1 (Source: IS Prime): USDCAD Weekly : Economic disparity in fiscal and monetary policy sees neighboring nations diverge in currency demand.

Headliner to Review

  • Yesterday’s labour market figures saw deteriorating conditions in UK’s labour market. Claimant count change experienced an unexpected increase beyond consensus to 64.3K whilst the unemployment edged higher to 4.9%. Following the expiration of the governments furlough employee subsidies in October, vacancies have remained statistically higher than norm.
  • Early indication from industrial production figures and manufacturing across developed economies suggest slowly but improving conditions.
    • The US posted a 0.4% increase from 0.3% in MoM industrial production
    • The AU saw manufacturing edge higher to 56 from 55.8
    • Japan’s manufacturing PMI figures also higher from 49 to 49.7

Headliner to Watch

  • The Federal Reserve’s final meeting of 2020 is expected to touch points on linking the timeframe of debt purchases with economic recovery metrics, a re-evaluation of economic forecasts as we now have a breakthrough vaccine, reviewing credit facilities ahead of Janet Yellen’s appointment as Treasury Secretary and lastly a nudge to congress in hopes a fiscal deal is made.
  • Come Wednesday, EU, UK and US are anticipated to announce flash manufacturing and services figures. A mixed bag with EU and US numbers expected to falter whilst UK advances higher.
  • A head of Christmas, US November numbers is expected to see a contraction in retail sales of -0.3%.
  • New Zealand Q3 to show a rebound from -12.2% to 12.9%. A v-shaped recovery is anticipated as the nation was one of the fastest to have dealt with COVID.
  • Labour growth in Australia set to slow from 178K to 41K with the unemployment to stay at 7%.

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Antony Tan
Ben Li
Kevin Jock