We’re not there yet
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.
Congress appears to be finalizing the final details of a coronavirus relief bill that will include stimulus checks. The need for more support is still warranted despite recent improvements with the economy. The short-term outlook will likely be covered with extended lockdowns that will cripple many small businesses. Support from the both the Fed and the Biden administration suggest stimulus efforts will remain in place for the early part of 2021.
On the data front, much attention will be on the final third quarter GDP readings, December consumer confidence, preliminary November durable goods data, and weekly jobless claims. The economy is starting to show deeper signs of slowdown and that could increase expectations that the next nonfarm payroll report will see job losses.
It is all about the Georgia Senate runoffs. The latest polls show Republican Sen. David Perdue has a 48.9% to 48.2% edge against Democrat Jon Ossoff and Republican Sen. Kelly Loeffler is tied with Democrat Raphael Warnock. Immediately after Election Day it seemed Democrats failed to capitalize on delivering a blue wave, but that might not be the case. Both races are too close to call and no one can be confident on what turnout to expect. The base case is still that Republicans will win one of the Senate races and secure control of the Senate but that is no longer a foregone conclusion.
The region is slowly going into lockdown as cases surge across the continent. The ECB provided more stimulus earlier this month so will likely be quiet for a while now. Brexit still a risk, with differences remaining.
Significant weekend risk again after the European Parliament insisted on a deal being agreed by Sunday, after which it won’t be ratified this year. That’s about as firm a deadline as we’ve seen so far and could force the necessary compromises to get it over the line.
The only caveat being the possibility of a provisional application which could tie us over until the EP approves in January. I can’t help but think after all these years, that’s the only way it’s going to go, which means this could go beyond Christmas. It wouldn’t be Brexit if it didn’t.
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 underway.
A normalization of policy action has helped the lira rebound in the final months of the year, with Turkey going into the new year with a new central bank head and finance minister and higher interest rates. This may continue for some time, reducing some downside risks for the currency. But this is a currency that never seems too far away from a crisis. The rebuild in underway.
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.
No other significant data.
No significant data this week.
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.
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.
The Bank of Japan meeting was a non-event. Japan releases Retail Sales and Construction Orders on Christmas Day as Japan markets are open. Large misses have caused volatility in USD/JPY on Christmas Day due to restricted liquidity.
Equities and currency otherwise at the mercy of US fiscal progress in US Congress.
Key Economic Events
Saturday, December 19th
- Brexit trade-deal talks are already in a serious situation and could be entering a pivotal moment.
Sunday, December 20th
- No scheduled events.
Monday, December 21st
- A EU’s medicines regulator meets with Pfizer and BioNTech, 8 days early due to pressure from Germany. It is widely expected for their coronavirus to get the greenlight, possibly signaling vaccinations will start by the end of the year.
- Japan’s Cabinet is expected to approve the fiscal 2021 budget and release the government’s borrowing plans.
- Mexico retail sales
- China expected to keep both 1-and-5-year loan prime rates unchanged at 3.85% and 4.65% respectively
- New Zealand credit-card spending
Tuesday, December 22nd
- US Final Q3 GDP, Dec Conference Board consumer confidence: 97.5 estimate v 96.1 prior, Nov existing home sales: 6.70 million estimate v 6.85 million prior
- Australia Nov prelim retail sales m/m: 2.5% estimate v 1.4% prior
- Japan machine tool orders
- UK public finances, GDP
- South Africa budget balance
Wednesday, December 23rd
- A wrath of U.S. economic indicators could show the economy is heading in the wrong direction.
- U.S. durable goods, initial jobless claims, personal income/spending, U. of Mich. sentiment, new home sales
- US Baker Hughes rig count
- EIA crude oil inventory report
- Chile central bank meeting minutes
- Canada GDP
- Thailand trade
- Singapore CPI
- Japan leading index
- Italy economic confidence
Christmas Eve – Thursday, December 24th
- US fixed income markets close at 2:00pm ET and stock markets close at 1:00 pm ET
- Mexico unemployment
- Canada building permits
- Japan PPI services
- Turkey rate decision
- Singapore industrial production
Christmas Day – Friday, December 25th
- Most stock markets close for Christmas
- Japan CPI, jobless, retail sales, housing starts
- Thailand foreign reserves
- Turkey capacity utilization, foreign tourist arrivals
- – No scheduled sovereign ratings on the calendar