News and Market Analysis

Key Drivers for the Week of Nov 30 – Dec 4
Key Drivers for the Week of Nov 30 - Dec 4

Key Drivers for the Week of Nov 30 – Dec 4

· Vaccine developments boost optimism, but virus a near term headwind

· Wall Street rallied to record highs, Dow hit 30k on promising vaccines

· Bond rates likely capped by ongoing central bank accommodation

· U.S. employment and ISM reports likely to show some loss of momentum

· Fed Chair Powell testifies on CARES Act Tuesday, Wednesday,

· Canada monitors employment, GDP, and trade reports

· Attention on Asian PMI reports from China, Japan, India, Korea

· RBA expected on hold at 0.10%; RBI seen steady at 4.0%

· Brexit uncertainties continue, ongoing risk of no-deal scenario

· Eurozone releases PMIs, CPI, jobless, retail sales PPI

· German HICP, unemployment, manufacturing orders awaited

· Switzerland reports retail sales, inflation, KOF leading indicator, PMI


Week Ahead: Game Changer?

On November 30, 2020

Equities rallied last week and have posted strong gains in November thanks to positive vaccine developments that should be a major game changer in 2021. Indeed, the increasing prospect that a distribution could begin as soon as early December have boosted optimism for a return to normalcy sooner rater than later. Investors have cheered and global stocks (ex-China) have posted double digit gains on the month even as record spikes in virus cases and more restrictive measures pose significant threats to the durability of the recovery. And even under the most optimistic vaccine scenarios, global economies will face a challenging winter. That realization, and ongoing central bank accommodation should cap bond yields if not knock them lower. There are plenty of key data reports this week, but amid the contrasting vaccine/virus dynamics, none are likely to alter general outlooks. On the other hand, a heavy slate of central bank speak that could provide clues on further accommodation.

With Wall Street hitting fresh record highs last week, including Dow 30k, profit taking and month-end rebalancing could could weigh. However, dip buying should limit selling pressure. A lot of focus will be on the November nonfarm payroll report given renewed shutdowns and layoffs. ISMs and vehicle sales will also be monitored for further insights on the economy through November. Fed Chair Powell testifies to Congress, where he is expected to reiterate his call for more fiscal stimulus while maintaining that the Fed has plenty of tools remaining. A gaggle of ECB speakers are expected to maintain the message that economies still need substantial monetary and fiscal support, with the bank readying a package of measures for the December meeting. In Asia, Japan has its usual month end data dump while China releases the always closely followed manufacturing PMIs.



The U.S. slate is heavy with data and Fedspeak that will provided timely insights into the impact of cross-currents at play in the economy during November. We’ll also be monitoring retail sales as the holiday shopping season kicks off. We suspect pent up demand will be a major source of support. However, the November employment (Friday) will be front and center. We expect a 540k November nonfarm payroll gain, moderating from the increases of 638k in October, 672k in September, and 1,494k in August. The jobless rate should be steady from 6.9% in October, versus a 14.7% peak in April. Hours-worked are assumed to rise 0.5% after a 0.8% October gain, with the workweek steady at a 20-year high of 34.8 for a third consecutive month, from 34.7 in August. Concerns over the labor market have been stoked by rising initial claims that have suggested renewed restrictions are having a negative impact. ns are hampering the growth rebound. However, we’d caution that powerful seasonal patterns for claims between mid-November and late-January will be disrupted this year by the holiday behavioral shifts due to the virus, so we are hesitant to read too much into the two-week initial claims rise.

The ISM reports are expected to indicate a loss of momentum heading into winter. The ISM manufacturing index (Tuesday) is expected to ease to a still strong 57.5 in November from a 2-year high of 59.3 in October. The index saw an 11-year low of 41.5 in April. The ISM services index should tick down to 56.5 from 56.6 in October, versus a 17-month high of 58.1 in July, an 11-year low of 41.8 in April, a 13-year high of 61.2 in September of 2018, and an all-time low of 37.8 in November of 2008. Other reports this week include auto sales (Tuesday), construction spending (Tuesday), initial jobless claims (Thursday), factory orders (Friday), and the trade deficit (Friday).

Fedspeak will be of interest with Chair Powell headlining. He’ll be testifying on the CARES Act on Capitol Hill, first to the Senate Banking Committee (Tuesday), and then to the House Financial Services Committee (Wednesday). We expect him to argue for more fiscal stimulus, especially with the expiration of more programs at the end of the year, and as the surge in virus cases and increased restrictions threaten the pace of the recovery. We do not expect him to give any indication, and front run the FOMC decision on QE at the December 15-16 meeting. The FOMC minutes from the November 4-5 meeting threw some cold water on expectations for a near term increase, though several policymakers have suggested they support more buying if the economy appeared to be stumbling and/or interest rates were rising. Other Fedspeakers include governors Brainard (Tuesday) and Bowman (Friday), along with presidents Daly (Tuesday), Evans (Tuesday), and Williams (Tuesday).

The corporate earnings remain lean this week: Monday has BHP, Zoom, and Autohome. Tuesday brings, Bank of Nova Scotia, Bank of Montreal, Veeva Systems,, HP, and NetApp. On Wednesday, results are due from RBC, CrowdStrike, Synopsys, and Splunk. TD Bank, Dollar General, CIBC, Marvell Technology, Kroger, Cooper Companies, and Ulta Beauty are due Thursday. There are not any reports due Friday.

A busy calendar is on tap in Canada this week. Q3 GDP, September GDP, November employment and October trade will provide insights into the size of the rebound in Q3 and the impact of the spike and infections and renewed restrictions that began in October and accelerated in November. Q3 GDP

(Tuesday) is expected to rebound 48% after the -38.7% plunge in Q2 that came as the economy was nearly shut down. September GDP is seen rising 0.9% after the 1.2% bounce in August. Employment (Friday) is projected to rise 40k in November following the 83.6k gain in October. The unemployment rate is seen at 8.8 from 8.9%. The trade deficit (Friday) is anticipated to narrow to -C$3.0 bln in October from the -C$3.3 bln shortfall in September. The Q3 productivity report (Wednesday), Q3 current account (Monday), October industrial product price index (Monday) and October building permits (Monday) are also due out this week. While the relative deluge of data is of interest, we suspect it will not materially change the outlook for moderation in Q4 growth due to the fresh restrictions that have come as virus cases pick-up, followed by a return to “normal” next year as the vaccine takes hold. Notably, there have been whispers that the economy could be setting up for a surge in inflation if demand returns quickly next year — something the BoC is likely to monitory closely.


This week’s calendar is very busy with key reports around the region with much of the focus on PMIs. Japan has its month-end data deluge that includes industrial production, retail sales, and unemployment. China’s ecnomy remains at the forefront of the recovery and this week’s reports on November manufacturing and services PMIs should confirm that. Elsewhere, production, trade, growth and price data populate the calendar. For central banks, Australia’s RBA meets, with no change to the 0.10% OCR expected. India’s RBI meets as well, also expected to leave policy unchanged at 4.00%.

In Japan, it’s a heavy slate of month-end releases. Preliminary October industrial production (Monday) is seen slowing to a 2.5% y/y pace from 3.9% previously. October retail sales (Monday) should see large retailers expand 5.0% y/y after a -13.9% rate of decline, and total sales increase 5.5% y/y following the -8.7% drop in September. October housing starts and construction orders are also due Monday. October unemployment (Tuesday) is expected unchanged at 3.0%, with the job seekers/offers ratio steady at 1.03. The Q3 MoF capex survey (Tuesday) is forecast at -14.0% y/y from -11.3% y/y. November auto sales are due Tuesday. November consumer confidence (Wednesday) is expected at 33.1 from 33.6. The November services PMI (Thursday) should dip to 48.3 from 48.7. China official November CFLP manufacturing PMI (Monday) is seen improving to 51.7 from 51.4. The November Caixin/Markit manufacturing PMI (Tuesday) is forecast rising to 53.9 from 53.6. The November Caixin/Markit services PMI (Thursday) is projected to dip to 56.5 from 56.8.

South Korea October industrial production (Monday) is expected to slow to a 0.5% y/y pace from 8.0% previously, while revised Q3 GDP (Tuesday) is seen unchanged at -1.3% y/y. The November trade report (Tuesday) should see the surplus widen to $7.0 bln from $6.0 bln. November CPI (Wednesday) is estimated to have warmed to 0.4% y/y from 0.1%. October current account figures are due Friday. India’s RBI meets (Friday) and is expected to leave policy unchanged, with the repo rate at 4.00%, where it’s been since the 75 bp easing in March. Growth has been picking up steam of late, making further cuts unnecessary for now.


Thailand’s October trade and current account figures are due (Monday). November headline CPI (Friday) is seen unchanged at -0.5% y/y. Indonesia November CPI (Tuesday) is estimated at 1.6% y/y from 1.4%. Hong Kong October retail sales (Tuesday) are seen falling -11.0% y/y from -12.9% on a value basis, and down -12.0% from -13.4% on a volume basis. Singapore November PMI is due Thursday. In the Philippines, November CPI (Friday) likely edged up to 2.6% y/y from 2.5% previously. Unemployment is due Friday.

Australia’s calendar has the RBA’s meeting (Tuesday), expected to result in no change to the 0.10% rate setting. At the last meeting, the bank cut its key interest rate to 0.1% from 0.25%, as was widely anticipated. It also announced a package of measures designed to secure a rapid recovery from the crisis now that lockdowns have lifted. Governor Lowe appears before the House of Representatives Standing Committe on Economics (Wednesday). The economic data slate is busy this week, with Q3 GDP (Tuesday) highlighting — we anticipate a 3.0% rebound after the -7.0% drop in Q2 (q/q, sa). Retail sales (Friday) are seen rebounding 0.3% in October after the -1.1% drop in October. The trade surplus is projected at A$6.0B in October from A$5.6 bln in September. The current account for Q3 (Tuesday), October building approvals (Tuesday) and October housing finance (Thursday) are also due out this week.

New Zealand’s docket has the trade price indexes (Wednesday) and building permits (Thursday). The next RBNZ policy meeting is February 24 of next year. Earlier this month, the RBNZ topped up stimulus with a new Funding for Lending Program to start in December, aimed at reducing banks’ funding costs and lowering interest rates. The bank’s economic projections were less pessimistic on growth and inflation and cut back the projections for peak unemployment. The cash rate was left unchanged at a record low 0.25% and the Large Scale Asset Purchase program remained at NZD 100 bln. The statement reiterated the commitment to use additional tools if necessary, but markets have started to price out expectations that the bank will move towards a negative rate regime next year, on the back of the less pessimistic outlook. The balance of risks remains tilted to the downside, but it seems that in the central scenario further rate action won’t materialize.


Eurozone: euphoria over vaccine developments has eased somewhat amid the realisation that despite the progress, there remain open questions and that European economies are likely to face further misery over the winter and well into next year even under the most optimistic vaccination scenarios. At the same time, Brexit talks still don’t seem to be going anywhere and the risk of a no-deal scenario remains on the table, which leaves markets cautious and the ECB on course to strengthen asset purchase and conditional loan programs at the December 10 meeting. With that in mind, comments from ECB officials including Lagarde ahead of the start of the blackout period ahead of the meeting will continue to sound dovish.

Data releases this week are highly unlikely to change the ECB’s dovish posture even if preliminary inflation data for November are likely to show a slight uptick in the headline rate. At an expected -0.4% y/y (median same), the German HICP rate (Tuesday) would still remain firmly in negative territory and

the same holds for the overall Eurozone CPI (Tuesday), which is seen rising to -0.2% y/y from -0.3% y/y. Variations in energy prices continue to play a very large role in headline inflation numbers and Eurozone PPI (Wednesday) is expected to lift to -2.2% y/y, with officials concerned that the prolonged inflation undershoot will ultimately lead to a change in inflation expectations and real deflation down the line.

Final PMI readings for November meanwhile are expected to confirm that lockdowns have plunged the services sector into a deep recession that is also dragging down overall activity, even if manufacturing continues to benefit from the ongoing recovery in major export markets and to a certain extent stock building ahead of the end to the U.K.’s transition period. The manufacturing PMI (Tuesday) should be confirmed at 54.8 and the services reading (Thursday) at just 46.9, which would leave the composite at 50.0, signaling stagnation.

Against that background, the recovery in the labour market is likely to have come to an end again and we see the German sa unemployment number (Tuesday) rising by 10K in November, which should see the sa rate rising to 6.3% from 6.2%. The overall Eurozone jobless number is even more backward looking, but also expected to lift to 8.4% in the October reading from 8.3% in September.

Eurozone October retail sales and German manufacturing orders for the same month are still expected to show improvements over the month, but with the former boosted by consumers preparing for lockdowns and the latter not reflecting the misery in the services sector. In our view, positive surprises will not change the overall outlook.

There are once again plenty of ECB speakers, which are likely to collective stress that even with vaccines underway, economies will still need substantial monetary and fiscal support and that the ECB is readying a package of measures for the December meeting. A strengthening of PEPP and TLTRO programs remains the most likely scenario for the next meeting.

U.K.: market participants have been continuing to wait in vain for a concrete development from the EU and UK future relationship negotiations. On Friday, the BBC cited an unnamed source saying face-to-face talks will take place in London over the weekend, though the EU’s Barnier would not travel unless the UK changed its negotiating stance. Fishing and level playing field rules remain the major blocks. What is clear, deal or no deal, is that EU and UK’s relationship will be an ever evolving and complicated one when the UK exits its transition membership of the common market and customs union at year end. The UK wants to diverge from EU rules, while EU states are concerned that the UK will undercut their markets. The relationship will be subject to dispute arbitration with the possibility of retributive measures. This is why markets are anticipating only a narrow free trade deal, which would be centred on manufacturing.

Note that the EU is considering a stopgap measure for UK financial services to kick in on January 1. The European Commission reportedly told member states yesterday that a decision on equivalence won’t be ready until next year (the UK financial markets must maintain equivalent rules to access EU markets).


Pressure on the UK government is intense. Brexit ideologues in PM Johnson’s party are demanding that no quarter is given to the EU, while a leaked Whitehall document this week warned of a “perfect storm” of chaos in the event of a no-deal in the Covid-19 era. U.S. president elect Biden warned London that the scope for a deal with the U.S. would be compromised if there is a return of a hard border on Ireland — which is what could happen in a no deal. In the no-deal scenario, the UK government would have the choice between respecting the withdrawal agreement it signed with the EU to maintain a free-flowing border on Ireland, at the price of imposing a border down the Irish Sea between Northern Ireland and the rest of the UK. Such a scenario would likely spark protests and quite possibly violence from loyalist militants, or break the EU withdrawal agreement, which would result in a hard Irish land border and a lot of bad faith between the UK and EU and the UK and the U.S., and quite possibly violence from republican militants. The stakes are high, which is why we expect a deal.

The UK data calendar this week is highlighted by the BoE’s monthly lending and money supply report, along with the final November PMI reports, which should affirm the picture of a double-dip recession-bound UK economy, albeit much shallower than the first recessionary dip that was seen earlier in the year. The UK is coming out of national lockdown on Thursday, with the exception of Northern Ireland, with localized tiered levels of restrictions to replace. The net effect will be increased economic activity.

Switzerland: the Swiss data calendar is busy, featuring the latest reports for retail sales, inflation, the KOF leading indicator, and the manufacturing PMI survey.

To read more about Mark Coe, read his profile


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