The next week is all about compromise. Can the UK and EU avoid a damaging no deal at the end of the month? Will Congress agree on a stimulus package and spending bill to prevent hardship for businesses and households and avert a government shutdown? Can EU leaders overcome their differences and sign off on the 2021-27 budget and Covid-19 relief package? It’s time for some deal making.
The focus in the US remains on the coronavirus and the growing restrictive measures aimed at thwarting its spread. Many states are at risk at reaching healthcare capacity and concerns are high that it will get worse by Christmas. Some states are seeing record high cases and the likelihood of more shelter-at-home orders will start to weigh on businesses. Pressure is growing for Congress to due to more and this should be a critical week for breaking the stimulus stalemate.
On Thursday, the November inflation readings should signal price pressures are still not a concern. The monthly reading should tick higher to 0.1%, while the year-over-year reading softens to 1.1%. Weekly jobless claims will be released, and the recent restrictive measures could start being reflected with this reading. Friday will provide the University of Michigan’s preliminary December consumer sentiment reading, which should show a further deceleration in confidence.
Campaigning for the two Georgia senate seats is about to enter a maddening pace. President Trump will give his support to Republican incumbent Senators David Perdue and Kelly Loeffler at a rally on Saturday. Democrats need to win both seats to have a split Senate, with VP Harris having the tie-breaking vote. Most political experts expect the Republicans to win at least one of the races and keep control of the Senate. Democrats will need to deliver a strong turnout but that will be difficult to motivate the younger voter.
The EU is sticking to its guns over the 2021-27 budget, which includes the €750 billion recovery fund. Opposition from Poland and Hungary to the rule of law clause has caused significant friction but the other 25 member states have signaled they’re prepared to persevere and have a plan B for the recovery fund that doesn’t require the backing of the two countries. An emergency budget would then be enforced from next year which would cut spending considerably. With Hungary and Poland being significant beneficiaries of the funding, it seems their hand is not as strong as they wish.
We’re at a critical stage now on Brexit with the next few days potentially seeing a deal signed or talks break down. EU leaders want to review the deal and next week’s summit, with there being less than four weeks until the end of the transition. Markets appear dangerously confident of a deal which poses not just downside risk, but significant weekend risk as well given the point we’re at.
The country has exited lockdown although life isn’t much different for most of the country, with the restrictions that remain in place. The MHRA moved quickly to approve the Pfizer vaccine which means it will be ready for distribution from next week to the most vulnerable. This is a massive step forward but it will still be months until it is available to the masses which means restrictions aren’t going anywhere just yet. Still, after the year we’ve all had, a few months is nothing.
Brexit remains the number one risk for the economy, with officials working hard towards a deal but the same old issues remain. A breakthrough could come in the next few days, one way or another.
The lira has broadly stabilized over the last few weeks following the sacking of the country’s central bank governor and resignation of its finance minister. Last months rate hike satisfied the demands of the markets for now but the currency remains very weak, historically speaking and vulnerable to further shocks.
US lawmakers are pushing for sanctions on Turkey as part of a defence spending bill which put the lira under a little pressure on Friday. I don’t think the impact will be overly significant though, which the currency likely having priced in a less friendly relationship with Biden from January.
A wrath of Chinese data is expected to show the economic recovery is not losing any momentum. Trade data is expected to show modest increases in both exports and imports (dollar terms). New yuan loans and aggregate financing are expected to increase significantly.
The Reserve Bank of India left interest rates unchanged this week as the country continues to battle stagflation. India entered technical recession last week and inflation is above the upper end of its target range. There are calls for the government to do more rather than lean on a central bank that is limited in what it can do without exacerbating the inflation problem.
The New Zealand Dollar continues to move further away from the 0.7000 level. The RBNZ is expected to keep the pace of bond purchases at NZ$800 million at QE auctions. Economic data releases this week will include REINZ House Sales, Business Manufacturing PMI and Food Prices for November.
The Australian dollar has been on a tear benefitting from the rally in commodities. A relatively quiet week on the data front from Australia will see an update from the NAB on business conditions, third quarter house price index and Westpac’s December consumer confidence index. The focus from Australia will remain on the diplomatic spat with China.
A busy week in Tokyo will start with household lending data that is expected to bounce back. The final third quarter GDP reading will likely be revised slightly higher on quarterly basis from 21.4% to 21.5%. Japan’s current account surplus should also rise higher as the export-driven economy was strong in October. Core machine orders should show a significant improvement from the drop seen in September. Lastly, Japan’s November producer prices index could turn positive on a monthly basis.
Key Economic Events
Saturday, December 5th
– Brexit negotiations are expected to inch towards a deal, but last-minute hurdles could derail a breakthrough
– President Donald Trump tries to assist the two Republican senators that are in the runoff elections on January 5th.
Sunday, December 6th
– No events
Monday, December 7th
– The deadline for setting the 2021 budget is here and all eyes will be on both Poland and Hungary and whether they will remove their veto.
– The UK parliament debates the Internal Market Bill amendments
– Holiday for Spain and Italy’s Milan
Germany Oct Industrial Production M/M: 0.7% estimate v 1.6% prior
Australia services index, ANZ job advertisements
Switzerland foreign-currency reserves
Japan leading index
China trade, foreign reserves
Tuesday, December 8th
– White House hosts coronavirus vaccine summit
– Holiday in Italy, Spain, Portugal and Austria.
Euro-area Q3 Final GDP
Japan Q3 Final GDP, household spending
Australia business conditions
Germany ZEW survey
South Africa Q3 GDP Q/Q: 64.5% estimate v -51.0% prior
Wednesday, December 9th
– German Chancellor Merkel speaks to the Bundestag during the 2021 budget debate.
– UK House of Commons debates the Taxation (post transition period) Bill
– Italian PM Conte tries to win the vote on the European Stability Mechanism reform
– Weekly EIA crude oil inventory report
US wholesale inventories
Germany trade data
Bank of Canada rate decision: Expected to keep Interest Rate unchanged at 0.25%
Australia consumer confidence
Japan core machine orders, machine tool orders
South Africa CPI, retail sales
France industry sentiment
Thursday, December 10th
– The ECB rate decision is expected to keep rates steady and deliver an increase and extension to its pandemic bond-buying program and provide banks access to more long-term loans.
– A crucial EU leaders summit will discuss the budget, stimulus and Brexit.
– Czech parliament’s upper house will vote on PM Babis’s request to curb a portion of the tax overhaul.
– Bank of Canada’s Deputy Governor Beaudry delivers the Economic Progress Report.
– The FDA reviews the vaccine made by Pfizer/BioNTech, potentially granting access for distribution within 24 hours.
US initial jobless claims, CPI, Treasury monthly budget statement
UK Oct GDP M/M: 0.4% estimate v 1.1% prior, industrial production M/M: 0.3% estimate v 0.5% prior, RICS house prices
South Africa current account, gold production, manufacturing production
France industrial production
Czech Nov CPI M/M: 0.1% estimate v 0.2% prior
Friday, December 11th
– Michigan consumer sentiment index for December is expected to decline from 76.9 to 76.3. The US is dip slightly after falling to a three-month low in November. The coronavirus cases are surging all over the country and likely triggering restrictive measures that will damage sentiment.
US PPI, University of Michigan sentiment, Baker Hughes rig count
New Zealand food prices, manufacturing PMI
Industrial production: India, Italy, Mexico
Sovereign Rating Upgrades
– Spain (Fitch)
– Switzerland (Fitch)
– Norway (Moody’s)
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