Talks continue on US stimulus, Brexit

In Asia, equity markets are off to a modestly positive start today, helped along by a new US916 billion stimulus proposal by US Treasury Secretary Mnuchin that includes some support for state and local governments. Whether that can get past the Senate Republicans is another question altogether, it being a red-line sticking point in negotiation until now. Still, with the proposal emanating from the White House, and not the Democrats, markets hope it represents a chance to break the deadlock.

Otherwise, the overnight session was dominated by more of the same waiting game, with financial markets still pricing in hopes that some sort of deal will be done. The saga of Brexit reflected much the same. Both sides agreed on a Northern Island proposal which saw London take the Internal Markets Bill off the table and raised hopes that barriers to an agreement had reduced ahead of PM Johnson’s visit to Brussels. Markets though have still not fully bought into those hopes, after sterling’s recent volatility delivered a dose of reality.

In the Asia-Pacific today, the data has been mostly positive, hinting that the region remains well poised to outperform in 2021 on a vaccine-led pandemic recovery. New Zealand Manufacturing Sales rose 3.10%, while Australia’s Westpac Consumer Confidence outperformed, rising to 112. Japan Machinery Tool Orders for October rose 3.10% YoY, and 17.10% MoM. That comes after Japan released its latest stimulus budget yesterday, a relatively painless process when compared to the travails in Washington DC.

China’s November Inflation fell unexpectedly by -0.50% YoY, and by -0.60% MoM. The unexpectedly large fall though reflects a fall in pork prices as China’s herds rapidly recover. A strong yuan will also have played its part. The effects are likely to be transitory and won’t be enough to deflect the PBOC from its relatively firm monetary policy settings.

Looking ahead, Germany’s October Balance of Trade is expected to rise to around EUR 23 billion with seasonally adjusted exports rising by 1.20%. That follows a positive ZEW number yesterday. November’s data is likely to be more telling though, covering the period where Germany’s second Covid-19 wave ramped up.

Germany’s data is unlikely to be market moving in itself, with attention focused on Brexit talks and tomorrow’s ECB rate decision. I expect rates to remain unchanged, but for the ECB to ramp up its monthly bond-buying targets and potentially increase funding via its Pandemic Emergency facility or TLTRO’s. That should be positive for European equities although the euro is more dictated by the US dollar outlook than ECB action itself. The ECB will set the scene for more of the same from the Federal Reserve next week.

Attention, this evening in the US, will be focused on the JOLTs Job Openings for October. Although slightly old news by now, given November’s events, the headline number is expected to retreat to 6.3 million. A more considerable fall will be food for thought for Senate Republicans and may help nudge stimulus negotiations along.

Overall, markets are in a wait and see mode on several fronts, notably the US stimulus negotiations and the UK/EU Brexit trade talks. Ever the optimists, financial markets are likely to modestly err to their vaccine-led recovery default sentiment, which should continue to support asset prices.