Markets
Global trading was driven by mixed, often divergent factors, leaving a rather inconsistent picture yesterday. US yields jumped higher in Asia as a report signaled Biden would announce a $2000 bln stimulus package, but there was no clear directional follow-through price action. US jobless claims unexpectedly jumped from 787k to 965k underscoring the negative impact of the new corona wave on the labour market. Fed Chair Powel sounded rather constructive on the economy going forward, but signaled that it is too early to started flagging a potential reduction in the Fed bond buying. Even so, US yields intraday regained some ground toward the end of the day as markets awaited the details of the Biden stimulus plan. At the of the day, US yields rose up to 4.6bps/5.6bps for the 10 & 30y yield respectively. German bunds again decoupled for Treasuries and strongly outperformed. The ECB minutes indicated that the bank could alter PEPP buying to keep to prevent an unwarranted tightening of financial conditions. The ECB also still doesn’t rule out a further rate cut if needed. The German yields declined further with 5’s and 10’s outperforming (-3.5bps and -2.8bps). Stocks showed a mixed picture. US equities closed with a small loss. European indices recorded gains of about 0.5%+. The dollar initially remained well bid. EUR/USD even temporaril y dropped below the 1.2130 minor support after the ECB minutes, but the move could not be maintained. EUR/USD closed little changed at 1.2155. Sterling extended its rebound. EUR/GBP came with reach of the 0.8865 area (close 0.8879).
Overnight, Biden revealing the details of its stimulus plan (cf infra) can’t convince and even triggered a buy-the-rumour, sell-the-fact reaction. Markets ponder how much of the plan will make it through Congress. Hints on potential higher taxes also dampened sentiment. US equity futures are drifting into negative territory and so are most Asian indices. The dollar retains the benefit of the doubt (DXY 90.34).
Markets will continued to ponder the impact of the Biden Plan. At least for now the assessment is cautious with markets turning slightly risk-off. Later, the focus will be on the US data with PPI, retail sales, production data and Michigan consumer confidence scheduled for release. We especially keep an eye at the consumer data. Retail sales are expected little changed after a November decline. Consumer confidence is expected modesty lower. We see mainly downside risks. Both US and, even more, German yields clearly entered a consolidation or even corrective phase after setting recovery highs earlier this week. We don’t see a trigger to reverse this corrective move going into the weekend. The dollar reacted to different factors of late, but ST term, it looks that the US currency maintains the benefit of the doubt. EUR/USD 1.2011 still remains next reference for EUR/USD correction. EUR/GBP nears the 0.8865 support. However a break isn’t that event, especially not if sentiment would turn more risk-off.
News Headlines
“We have to act and we have to act now”. US President-elect Biden’s message was clearcut when he announced more details of his flagged $1.9tn economic relief package.The Pandemic Aid Bill includes over $1tn in direct relief spending, $440bn for businesses & communities and $400bn for Covid-19 management. Measures related to state and health care aid will likely need 60 votes in Senate while most other require a simple majority under a special budget tool. The anticlimax of his speech came after he strengthened his call to close tax loopholes for companies that ship American jobs overseas or that allow American companies to pay zero in federal income taxes. Today, Biden is expected to talk about coronavirus containment plans.
The Bank of Korea left its policy rate unchanged at 0.50% this morning. The 2021 growth forecast remains untouched at 3%, but there’s a big divergence between a booming external export sector and trouble at home. While the BoK intends to keep policy accommodative to support the recovery, BoK governor Lee did warn more explicitly on possible negative side-effects from low rates such as household debt growth and rapid gains in asset prices. The central bank would consider purchasing bonds if needed to stabilize any possible volatility in the bond market.
