Market Drivers Nov. 30, 2020
- Equities give up gains
- CNY data at multi year highs
- Nikkei -0.79% Dax 0.18%
- UST 10Y 0.84
- Oil $44
- Gold $1775/oz.
- BTCUSD $8407/oz.
Asia and the EU
- CNY PMI 56.4
- EUR HICP -0.9%
US
- USD Chicago PMI 9:45
- USD Pending Home Sales 10:00
Equities opened stronger but gave up their gains in early European trade while the dollar remained weak across the board as markets geared up for a full week of data while the COVID pandemic showed no signs of a slowdown in the US.
Stock index futures were mixed with S&P 500 down about 36 basis points while Nasdaq was essentially flat. Equity investors remained optimistic about the prospect of a vaccine but the upside momentum has clearly slowed as sentiment has become skewed to the upside and traders will likely start to take their cues from the economic data this week as prospects of any additional fiscal stimulus are delayed until next year.
The dollar meanwhile continued to weaken with EURUSD now within the striking distance of the key 1.2000 figure as dollar selling flows have continued. One reason for greenback's recent weakness is the pullback in US yields. The benchmark 10-year rates have been stuck at 85 basis points for the better part of a week after failing to breakout above the 1% mark. The action suggested that fixed income traders remain skeptical about any uptick in the US economy on vaccine hopes and the real rate differentials are now showing further need for downside adjustments against US trading partners such as the Japanese yen with USD/JPY possibly falling to 102.00 as the end of the year nears.
On the Brexit front, there was some positive comments from Dominic Raab that the parties were close to a deal, but the fisheries issues remain as key sticking point and it’s unclear if the UK and the EU will be able to put their differences aside and arrive at a compromise before a hard Brexit takes place January 1 of next year.
The markets appear nonplussed by the prospect of a no deal exit with cable remaining firm as it trades comfortably above the 1.3300 level. FX traders clearly believe that an 11th hour compromise will be reached and sterling is trading accordingly. The economic costs of a no deal spin out will be painful to both parties but the market may underprice the risks of political stubbornness. If the UK suddenly finds itself with no deal with the EU, a hostile Biden administration and a still raging COVID pandemic cable could quickly trade down to 1.3000 as the complacency wears off.
Although today is a light eco day with just the Chicago PMI on tap, traders will get a slew of data this week including ISM Manufacturing report, Chair Powell testimony and the NFPs at the end of the week. The key question will be how well is the US economy coping with the 2nd wave of the virus which has now hospitalized a record 93,000 patients. Some critics have pointed out that despite the severity of the virus, consumer behavior has actually been far less defensive than in March and April as better therapeutics and knowledge of the infection have tempered fears of the lethality of the disease and that may translate into better transactional flows during the key Christmas season than the initial analysts expectations. If the economic rebound shows no sign of slowdown the stocks are likely to extend their gains as the week proceeds, but if the data falters it will offer a perfect excuse for profit-taking after the run ups of last week.