The weekend news front was relatively quiet unless following the saga of the US election results was your thing. Sentiment is driving markets this morning, and that is mostly positive. Covid-19 vaccinations are expected to commence in December in the US and the UK on a limited scale if Pfizer and Moderna’s vaccines are granted early approval. The G-20 committed (mostly) to funding vaccines for equitable distribution around the world in 2021. In the US, Treasury Secretary Mnuchin said that stimulus talks between all parties will continue. The differences between the sides are large, but it is the thought that counts.
Asia was given one dose of reality though, with the Singapore and Hong Kong travel bubble postponed for two weeks after a spike in cases in Hong Kong. It highlights the challenges the world faces reopening borders, and perhaps will spur more discussion on infection rates versus economics on a cost-benefit basis.
Overall though, the light at the end of the tunnel sentiment has been mostly positive for Asian equities to start the week, and notably, the pro-cyclical Australian and New Zealand dollars. Both countries produced robust data this morning, aiding the rally. New Zealand Retail Sales rose 28% QoQ in Q3, as kiwis went on a post-lockdown spending spree. In Australia, November Manufacturing and Services Markit Flash PMI’s rose further into expansionary territory at 56.1 and 54.9 respectively.
We will receive more Flash Manufacturing and Services PMIs for, France, Germany, the Eurozone and the United States for November later today. Manufacturing should continue to improve, although services may suffer due to Covid-19 lockdowns, but remain expansionary, or very near to it. Only a large downside disappointment, particularly in manufacturing, is likely to dampen the positive sentiment propping up the equity rally.
United Kingdom equities and the pound are likely to outperform after Brexit trade news in the weekend. The UK press is carrying various stories that an agreement is near and could be concluded by early next week. Sterling, notably, could potentially book some substantial gains this week, if the substance of the reports is correct.
US Personal Spending and Durable Goods will be released on Wednesday evening and form the week’s data highlight in a decidedly second-tier week. Both sets of data for October should show improvements but have come before the surge in Covid-19 cases sparked more movement restrictions across the United States. The November data will provide a more telling story, not just in the US, but globally. In Asia, the pace of recovery could moderate into the end of the year, as the knock-on effects of Covid-19’s rampage across Europe and the US make themselves felt. However, Asia should continue to outperform into 2021.
Of more interest will be the release of the ECB’s Financial Stability Review and the FOMC minutes. Markets will be looking for confirmation that both the December ECB and FOMC meetings will be “live” with more monetary stimulus on the way. They are unlikely to be disappointed. Tomorrow, RBA Deputy Governor Debelle, and RBNZ Governor Orr are both scheduled to speak. Both are expected to remain uber-dovish, vaccines or not. The outperformance of the New Zealand dollar could also spur some warnings/threats about its high level from Governor Orr, which might take the heat out of its rally temporarily.
Globally, trading on financial markets will be disrupted this week by the US holiday on Thursday for Thanksgiving. The silencing of the turkey’s aside, much of the country will probably lock in Friday vacations and make a long weekend of it. Markets will probably concentrate on how many Americans ignore the pleas by authorities except the White House, not to travel, to limit the Covid-19 spread. If American’s en masse ignore those dictates, the follow-on could impact consumer data into December for obvious reasons.
A real-time insight into the state of the US consumer will occur on Friday, which is the Black Friday shopping day. Most of the action will happen online thanks to Covid-19. Real-time data from online and physical sales will hint at whether the renewed waves of Covid-19, the ensuing restrictions and the runoff of the first fiscal stimulus, are overriding America’s need for a bargain or buying things they don’t really need. With Black Friday marking the first proper day of the critical holiday shopping season, an underwhelming shopping frenzy may take more steam out of the cyclical rotation trade that started after Pfizer’s vaccine announcement.