INSIGHTS

Duncan Donald

Fri, Dec 4


Vaccine optimism persists as daily cases show little sign of turning in Europe and the United States

2020 has been a year like no other and as it moves towards a close a sense of optimism dominates the markets in the outlook for 2021. Over the last few weeks, the renewed hope of a successful vaccine for Covid-19 has gone from a hope to an impending reality. As soon as next week we could see the first vaccine centres operational in the UK, as the path to delivery is laid elsewhere across the world. Whilst we have noted in the last few weeks reports that the markets seek to look beyond the rise of cases in Europe and the US, that trend continues to be prevalent even as cases, hospitalisations and deaths rise in the US. Yesterday, the States recorded over 200,000 new cases registered a new world record that nobody wants. This week we have seen Los Angeles and California heighten lockdowns and all this before we really get to the fallout of the Thanksgiving impacts of citizens mixing. In Europe there remains little sign of daily cases slowing, in France we have seen no raise in case levels in the last few days, making them the best performer, but elsewhere numbers seem to increase by an average of 1.5% a day.  This raises the question of whether the lockdowns that have been endured for over a month have been ineffective, or perhaps more likely, if they hadn’t been enforced just how bad it could have been.

 

With the markets looking past the short term hurt to the potential long term good, stocks have enjoyed another strong week with record highs being hit across US indices with the Nasdaq hitting 12,545, S&P 3,700, Dow Jones 30,218 at their peaks. In the UK boosted by the early vaccine approval the FTSE Index was probably the standout performer on the week, touching 6,548 as the path to Covid recovery comes within touching distance, as well as Brexit optimism.  In the currency markets, confusion prevails, the growing tone is of course US Dollar weakness as participants bail out of safe haven plays and into riskier trades, but of the major currencies the question remains what currency do you buy. As previously mentioned in past reports the New Zealand Dollar and CNY/CNH have been the obvious choices as a reward for impeccable handling of the virus. Elsewhere it becomes more of a battle, we know the Eurozone is not happy with the currency appreciation seen of late, Japan is never happy when the USD/JPY rate nears 100 and China will have a line in the sand on the tolerance of currency appreciation. So perhaps by default the Brexit hindered Pound could offer an option moving forward.

 

Brexit again dominated the newswires this week and again it was not a steady path, but the currency held up well perhaps with more thanks to US Dollar weakness. The will there/won't there be a deal saga looks to be continuing to the 11th hour changing in probability from one press soundbite to the next. With all parties seemingly wanting a deal and thinking it can be done, from what we gather there remain concerns over regulation of a competitive playing field and fishing. It's thought France could prove to be a major protagonist and talks between Boris Johnson and EC leader Von Der Layen and French Leader Macron this weekend, could prove to make or break. The EU still has its own stimulus plan issues with Hungary and Poland still refusing to agree terms with the bloc meaning they could well be left behind as they push to complete the package. In the states the stimulus plan remains unresolved even at the newly proposed lower level, with all parties sounding positive noises to get the aid where it needs to be until they are forced to collaborate on agreement. The positivity stateside also comes from  the transfer of power towards President Elect Joe Biden, with the markets happy with the formation of his new cabinet. As Trump's grasp of power dwindles, his parting shots of petulism are being ignored by the markets with hope of a more honourable path and the rebuilding of global relationships under Biden. 

 

The Week Ahead: 

 

Monday - Trade Balance data from China is first up before German Industrial Production numbers. In the US session we get Canadian Ivey PMI’s. Late in the day comes Japan’s GDP release. 

 

Tuesday - First up is French Trade Balance. From the Eurozone we get Employment numbers, Revised GDP and Zew Economic Sentiment from the bloc and Germany. 

 

Wednesday - The day starts with CPI and PPI inflation data from China. In the European session we get German Trade balance data. In the US session there's an Interest rate decision and Statement from the Bank of Canada and US Wholesale Inventories. 

 

Thursday - UK RICS house price data comes early in the Asian session. At 7am UK time we get a raft of UK data, with Construction, GDP, Trade Balance, Industrial Production, Manufacturing numbers before Chinese Money Supply and Loan data.  Early in the US session we get the Interest Rate decision from the ECB and Press Conference as well as US CPI and Weekly Unemployment data. 

 

Friday - First up is German CPI data before Bank of England Financial Stability Report. Next up is French CPI and Italian Industrial Production before US Core and Non Core PPI. The last data of the week is US University of Michigan, Consumer Sentiment and Inflation Expectations.


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