Market Commentary - December 10, 2020
Wall Street revaluates stimulus before January retreating from record highs, with the Nasdaq underperforming 2.4% as congressional talks hit a brick wall. The administrations $916bn counterproposal had received a frosty reception from House Speaker Pelosi and top Democrat Chuck Schumer. Despite attempts by Senate Majority leader McConnell in conceding demands for protection to shield businesses from COVID related liabilities, Democrats find the new bills’ reduction in jobless benefits unacceptable.
Across the pond, the E.U. and U.K. deal with political wrangling of their own. Drastic deterioration in Brexit negotiations this week saw PM Boris Johnson personally fly to Brussels only to be stone-walled by EU heavyweights whom signalled they’re prepared to accept a no-deal outcome. Though the pound initially slipped 70 pips, the FTSE remained unchanged illustrating a clear divergence between the current state of Brexit talks and investor anticipation of a last-hour deal. Both sides have agreed to give till Sunday before negotiations are dead. Meanwhile, European indices slip from multi-month highs ahead of the ECB meeting on Thursday.
With the overall global mood overshadowed by U.S. stimulus and Brexit, Australia and Hong Kong saw modest intra-day declines whilst Japan inched higher following the release of better than expected manufacturing data.
Increasing uncertainty saw a return in U.S. dollar demand whilst gold loses 1.6%. Though the Aussie moved against the grain to a 2 and a half year high, despite rising AU – China tensions. Chinese demand for Australian iron ore remains strong, especially as the East recovers economically. Historically, AUDUSD would appreciate alongside commodity prices. Elsewhere, a tourism snag brought the Singaporean dollar’s rise to a halt. A return to normalcy had the currency break a 2-year high on prospects that tourism would open back up only to be derailed by a COVID-19 infested cruise ship just off the country’s shores. Following OPEC, oil fluctuates around $45.50 despite yesterday’s inventory revealing a dramatic surplus at 15.2mn.
Figure 1 (Source: IS Prime): NASDAQ 1min : Nasdaq plummets during U.S. session as investors re-evaluate prospects of fiscal stimulus before year end.
Headliner to Review
- As expected, the BOC reiterated their super accommodative stance. Policy rates are not expected to rise until 2023 whilst the pace of the quantitative easing program stays at $4bn per week. Following the announcement, lacklustre volatility on the loonie as some expected guidance on potentially micro cuts lowers than 25 basis points.
Headliner to Watch
- On Thursday the ECB is expected to unveil more quantitative easing and cheap loans as the recent social restriction weigh down on economic activity. There is also expectations during subsequent press conference for ECB President Christine Lagarde to raise concern over the Euro’s long term appreciate against the American dollar.
- US unemployment claims are expected to edge higher from 712K to 723K. Improvements in the labour markets are expected to halt until either resolution from pandemic or further fiscal stimulus.
- US CPI data expected to edge to 0.1% from 0. Last month saw mixed results with higher airfares and car prices offset by cost in gasoline, medical, clothing and insurance.
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Topics: Market Commentary