Market Commentary – December 7, 2020

Kevin Jock

7th December 2020

    Asia fails to build on momentum from last week’s vaccine and U.S. stimulus induced rally that edged Wall Street to fresh highs on Friday close. Indices retreated into negative territory on open with Australia lower by 17 points overshadowed by rising Chinese trade tensions. Government forecaster Abares expects agricultural exports to decline 7% in 2021 hitting a 5-year low.  Meanwhile, the Hang Seng tumbled 2% following reports that the White House will sanction another dozen Beijing officials over their coordination in expelling opposition legislators in Hong Kong’s parliament. The Nikkei did not fare any better, slipping 1.2% after hitting a 29-year high last week. Concerns have risen over a weekend report depicting the Bank of the Japan as the largest owner of Japanese shares at $434bn, followed by the nation’s public pension fund.

    European benchmarks rallied on Friday on the back of oil companies. A sigh of relief as OPEC+JMMC members agreed to a compromise in making small piecemeal increases in oil production starting January instead of a complete resumption. Signs that one of the biggest obstacles to a post-Brexit deal moving towards a resolution saw the FTSE surge to 10-month highs. Britain is willing to offer a 3-year access agreement with EU fishermen to operate in U.K waters, though the catch volume remain in discussion. Monday session though, saw overnight futures slide 20 points as talks deteriorated on Sunday. Irish Prime Minister noted “it’s a 50-50 right now” with the new source of disagreement being future regulation governing EU and UK businesses to ensure a level playing field.


Figure 1 (Source: IS Prime): USDCNH Daily: Investors brave rising geopolitical tension in search of higher yield in China sees the yuan’s continual rise.

    Elsewhere, the U.S. dollar regained ground among majors following a week of depreciation from risk-on sentiment. American macroeconomic performance has been lackluster as seen in Friday’s jobless numbers spurring investors to seek yield elsewhere. Among exotics, investors continue to favour the Mexican Peso and Chinese Yuan as both each respective currency keeps breaking new highs. The former at an 8-month high, whilst the later at a 2.5-year high. Momentum from OPEC saw crude oil briefly hit $46.50, whilst Bitcoin oscillates around 19,000.

    For the week ahead, the BOC expected to stand pat on Wednesday, whilst the ECB has indicated they will add another 500bn to emergency asset purchases. The EU summit starts Thursday and ends Friday where leaders intended to approve the next budget alongside the 1.8tn recovery package. And finally the U.K. will administer its first Pfizer vaccine dose on Thursday.

Headliner to Review

  • In Canada, Employment Change dropped from 83,600 to 62,100, which was better than the expectation of 22,000 increase. The unemployment rate dropped significantly from 8.9% to 8.5%. Trade Balance remained at -3.8 billion.
  • In US, the employment situation improved. Unemployment Rate dropped from 6.9% to 6.7%. Non-Farm Employment Change dropped from 610,000 to 245,000. Average Hourly Earnings m/m increased from 0.1% to 0.3%. Trade Balance dropped slightly from -62.1 billion to 63.1 billion. The economic data shows that the labor market is recovering from the pandemic downturn, but it is still far away from a full recovery.
  • Construction PMI in UK increased 53.1 to 54.7, which was far better than the expectation of 52.3. The PMI reading above 50 show most firms are expanding. Housebuilding saw the most widespread growth in trade.
  • Australia’s Payments System Board has resumed its periodic Review of Retail Payments Regulation. Lowe from RBA said, “The board’s preliminary view is that the BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation,”

Headliner to Watch

  • All eyes on the U.S. today. A bi-partisan group of Senators are expected to bring to the floor a 900bn stimulus package with early signs that both President Trump and Majority leader McConnell has agreed upon.

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Antony Tan
Ben Li
Kevin Jock