November 30, 2020 by Mark Coe

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.  

NORTH AMERICA

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 Salesforce.com, Bank of Nova Scotia, Bank of Montreal, Veeva Systems, Trip.com, 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.

ASIA

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.

EUROPE

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 https://asiacapmarkets.com/mark-coe-market-research-analyst   Please follow us on our socials:

November 25, 2020 by Mark Coe

Overnight Bullets Wall Street leads the pack

-Japan services PPI; Malaysia CPI; Thailand manufacturing production due

-Wall Street surges, Dow climbs over 30,100 on positive vaccine hopes

-Treasury's $56 bln 7-year auction solid, 0.653% stop, 2.37 cover ratio

-U.S. consumer confidence fell -5.3 points to 96.1 in Nov from 101.4 in Oct

-U.S. Richmond Fed index dropped -14 points to 15 in Nov from 29 in Oct

-U.S. FHFA house price index surged 1.7% in Sep; largest gain on record

-Wall Street stronger on vaccine optimism, Biden transition; Dow 30k

-Dollar bloc currencies firmer amid risk-positive positioning

-German Ifo index plunged to 90.7 - weakest reading since July

Asian Open

Asia Market Outlook (November 25)

Wall Street surged overnight, with the Dow surpassing the 30k mark. More good news on vaccine developments has underpinned gains amid hopes for a quicker than expected return to normalcy. Also the news that the Trump administration is working on a transition gave some relief, as did reports that Janet Yellen, a very well known quantity for Wall Street, would be nominated for Treasury Secretary. It's also expected that a Biden administration and Yellen Treasury would argue strongly for additional fiscal stimulus. The Dow's gains were across all sectors, but led by energy, materials, industrials, and financials. A hefty amount of sidelined cash is also expected to come into the stock market, though there is also expected to be some major rebalancing into year end. Core European bourses were all higher, with the FTSE adding 1.55%, the DAX up 1.26%, and the CAC 40 advancing 1.21%. Treasuries sold off on the strength in risk appetite and supply. The 30-year yield was over 5 bps higher at 1.60%, while the 10-year was up 3 bps to 0.882%. The 2-year was little changed at 0.162%. The curve widened to 72 bps from 68 bps Monday and 66 bps late last week. The 10-year Bund yield was up 1.1 bp at -0.56%, while the Gilt yield had lifted 1.1 bps to 0.327%. Eurozone peripherals outperformed thanks to dovish ECB comments and as risk appetite improved.

Today's regional calendar is light, but will reveal Japan October services PPI, which is expected to have fallen 0.5% y/y from 1.3% previously. Malaysia October CPI is estimated at -1.4% y/y, unchanged from September. In Thailand, October manufacturing production is anticipated at -2.0% y/y from -2.8%.

In Europe, the docket is empty.

The U.S. calendar is very busy as data was condensed ahead of Thursday's Thanksgiving holiday. The second Q3 GDP report is expected to improve to 34.1% from 33.1%. October durable orders are seen rising 1.0% from 1.9% previously. October advance goods trade report is expected to see the deficit widen to $81.0 bln from $79.4 bln. Advance October wholesale and retail inventories are due as well. Initial jobless claims are expected to fall to 720k from 742k, and continuing claims are seen at 6.000 mln from 6.372 mln. October personal income and consumption should see the former rise 0.1% from 0.9%, and the latter rise 0.6% from the 1.4% increase in September. October new home sales are penciled in at a 0.965 mln pace, versus 0.959 mln previously. The final November University of Michigan consumer sentiment index should improve to 79.0 from 77.0. Weekly MBA mortgage and oil inventory figures are also on tap. The Fed will release the minutes from the November 4-5 FOMC meeting. The earnings calendar is light and features reports from Deere & Co., and Trip.com.

FX Overnight

N.Y. FX Summary (November 24)

The Dollar ran higher into the N.Y. open and beyond on Tuesday, taking the DXY from 92.19 to 92.55. The USD advanced versus all the major currencies, seemingly on the back of the formal start to the transition to a Biden presidency. Gains were later partly reversed, perhaps as risk-taking levels surged. The DJIA headed over the 30k mark for the first time, as Wall Street rallied sharply. While the good news on vaccine developments has underpinned gains amid as quicker than expected return to normalcy. Additionally, the pick of Janet Yellen, a very well known quantity for Treasury Secretary, calmed fears of a more radical pick. It's also expected that the Biden administration and Yellen will argue for additional fiscal stimulus, which would be supportive of further stock and USD gains.

EUR-USD put in a choppy session, rising from near 1.1845 to 1.1895 in London morning trade, before falling to 1.1841 in early N.Y.. From there, the pairing bounced to 1.1885, then settled under 1.1870. The formal start of the transition to a Biden presidency improved USD sentiment, as did the appointment of Yellen to Biden's Treasury Secretary post, which calmed fears of a more radical pick, and upped the expectations that the Biden administration and Yellen will argue for additional fiscal stimulus, positive for Wall Street and the USD. EUR-USD has largely consolidated November's modest gains, with the 1.1900 level remaining as solid resistance.

After rallying to 1.3380 in London morning trade, Cable fell to 1.3293 in early N.Y., as a broad round of Dollar buying hit the market. The pairing later recovered to 1.3360 highs. EU and UK negotiating teams have been continuing discussions by video conference, with the deadline for reaching agreement, is reportedly now next Tuesday. Heads of state are now fully engaged. We fully expect that win-win will prevail, with both sides evidently striving to a avoid no-deal, even if it means some kind of fudged extension. JPMorgan analysts are less confident, but still give 80/20 odds for a deal, up from 66% odds for a deal they previously envisioned. France is the main 'bad cop' protagonist on the EU side, along with Spain to a lesser extent, which has a special interest about Gibraltar, threatening on numerous occasions to veto any deal if it doesn't get what it wants on fishing rights. The most likely outcome is a narrow trade deal.

USD-JPY rallied to seven-session highs of 104.76, up from 104.55 at the open, and overnight lows of 104.15. Dollar demand was a feature since London morning trade, seeing the greenback lifted against most major currencies. The start of the formal transition period to a Biden presidency appears to have given USD sentiment a boost, while hopes for a robust U.S. economic recovery in 2021, once Covid vaccines are rolled out appears to have helped the USD for now at least. USD-JPY support is at the 20-day moving average of 104.47, with resistance at the 50-day moving average at 104.95.

USD-CAD bounced from two week lows of 1.3010, trading to 1.3091 highs in early North American trade. The overnight move to the lows came as oil prices hit three-month highs, though broad USD buying stepped in ahead of the open, prompted by the formal start of the transition to a Biden presidency, and a market looking ahead to 2021, when vaccines should put an end to the pandemic. USD-CAD later did an about-face from early gains, retracing to 1.3018 lows in early afternoon. Oil prices advanced further, taking WTI crude over the key $45 level, while surging equities and general risk-on conditions supported the CAD as well. The overnight low of 1.3010 now marks support

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November 24, 2020 by Mark Coe

Asia-Session

Overnight Bullets

-Asia: South Korea consumer confidence; Hong Kong trade -Treasury's $57 bln 5-year sale mixed, tails to 0.397%, garners 2.38 cover -Treasury's 2-year auction decent but mixed results, record $56 bln at 0.165% -U.S. flash Markit PMIs climb, manufacturing index at 56.7, best since Sep 2014 -Wall Street firmer on third vaccine candidate optimism; Brexit progress -Treasuries cheaper amid rise in risk appetite and heavy upcoming supply -U.S. Chicago Fed national activity index rose 0.51 points to 0.83 in Oct -Brexit: Signs looking good for a trade deal, deadline now reportedly December 1 -Sterling up on reports of EU and UK drawing near to reaching a trade deal -Dollar, yen softer on risk-on theme; vaccine news, data and Brexit news in the mix - 2020 U.S. Holiday Sales Poised to Weather the Pandemic -A Brexit Deal Is Unlikely to Be the End of Trade Tensions -Growth Outlooks Hit By Second Wave

Asian Open

Asia Market Outlook (November 24)

Wall Street moved higher overnight, buoyed by news that AstraZeneca's Covid vaccine achieved efficacy of as much as 90% in late-stage trials (though it requires 2 doses for that efficacy). This particular vaccine is reportedly cheaper to produce and does not require super-cold temperatures to store it. That will make distribution to poorer countries much easier. U.S. data was supportive of stocks as well, as the November Markit PMIs came in better than expected. Core European bourses all closed fractionally lower after giving up the day's gains. Treasuries cheapened on the day due to the rise in risk appetite and as record coupon supply hit. The 30-year bond was up nearly 4 bps to 1.566%. The 10-year was 3 bps cheaper at 0.86%, while the just auctioned 2-year was at 0.170%, at a small loss from the 0.165% award rate. The curve bear steepened to 68.8 bps versus 66.3 bps on Friday. Core EGB yields moved higher in tandem with U.S. Treasury yields, as encouraging vaccine news and positive signals on Brexit helped to boost sentiment. The Gilt underperformed, with the rate rising 1.7 bps to 0.316%. The Bund edged up slightly to -0.583%. Eurozone peripherals traded mixed, with Italian and Greek 10-year bonds outperformed as ECB officials continue to signal a strengthening of the PEPP program in December. Today's regional calendar Today's regional calendar is light. Japan returns from Monday's holiday. South Korea reports November consumer sentiment. Hong Kong has October trade, which should see the deficit narrow slightly to HKD 12.2 bln from 12.7 bln. In Europe, Germany will reveal the 2nd releases of Q3 GDP, along with Q3 consumption, investment, government spending, and Q3 import and export figures. November Ifo business climate data are due as well. France has November business confidence and the November production outlook. In the U.K., November CBI distributive trades survey - realized is due. In the U.S., it's a heavier slate of data. November consumer confidence is expected to lift to 104.0 from 100.9. The November Richmond Fed index is forecast to have fallen to 16 from 29. the September FHFA home price index is due along with the September S&P/Case-Shiller home price index. Weekly chain store sales are on tap as well. The Treasury auctions $56 bln of 7-year notes and $24 bln of reopened 2-year FRNs. For Fedpeak, Bullard and Williams are on deck. The earnings calendar features reports from Medtronic, Vmware, Autodesk, Dell, Analog Devices, Best Buy, HP, Hormel Foods, Dollar Tree, Burlington Stores, J.M. Smucker, and Autohome.

FX Overnight

N.Y. FX Summary (November 23)

The dollar turned broadly higher in N.Y. on Monday, with the better Markit PMI outcomes providing the main driver. USD Short-covering was noted after the unit tumbled through much of the month of November. The DXY recovered from near three-month opening lows of 92.02 to 92.80. In addition, firmer Treasury yields gave some support to the Greenback. More positive vaccine news appears to have helped, as the FX market begins to look through the current spike in Covid cases to the spring when widespread vaccine distribution is expected, which will mark the beginning of the end of the pandemic. Wall Street was higher as well. EUR-USD fell from just over 1.1900 at the open to 1.1800, while USD-JPY rallied from 103.70 to 104.64. USD-CAD headed from 1.3047 to 1.3113, while GBP-USDD pulled back from near three-month highs of 1.3398 to 1.3264.   EUR-USD printed a seven-session low of 1.1800 in N.Y. morning trade, down from 1.1906 seen at the open, and marking the pairing's biggest down day in two-weeks. Better U.S. PMIs came to the Greenback's aid, and USD short-covering was reportedly a factor across all the major USD pairings. Next EUR-USD support comes at the 20-day moving average, currently at 1.1792, then the 50-day moving average at 1.1775. Resistance is at the earlier 1.1906 peak, then the November 9 high of 1.1920. Dollar gains drove Cable lower following strong U.S. data, which highlighted a notable growth advantage of the U.S. economy relative to the UK and European economies. Cable printed a near three-month high of 1.3398, later falling to 1.3264. Of note, the UK's preliminary November services and manufacturing data produced a much less severe drop in the composite reading than had been expected, though still signaled a contraction in economic activity.   USD-JPY rallied to one-week highs of 104.64, up from early lows of 103.70. Better Markit PMI numbers helped, sd did firmer Treasury yields, while short-covering from what were seen as oversold conditions supported as well. The pairing has traded through its 20-day moving average, currently at 104.45, and will now eye the November 17 peak of 104.64.   USD-CAD rallied on Monday, as the USD made broad gains. After opening at 1.3047, the pairing made its way to 1.3113 highs. Oil price gains along with a broadly weaker Greenback overnight saw USD-CAD under modest pressure. WTI crude traded over the $43 mark, while the DXY hit near three-month lows of 92.02 before recovering. More good Covid vaccine news helped the CAD some early on, though a broad round of USD short-covering later took the pairing higher.

November 23, 2020 by Mark Coe

-Record infections, renewed restrictions dim recovery outlooks as we wait for vaccines -U.S. markets closed Thursday Thanksgiving; Japan closed Monday -Attention on U.S. confidence, income, consumption, durables, knew home sales data -Treasury auctions record $169 bln in 2-, 5-, 7-year notes Monday, Tuesday -BoK expected on hold at 0.50%; Japan services PPI, Tokyo CPI expected in deflation -Brexit progress remains slow, talks may be extended to early December -Europe Markit manufacturing, services, composite PMIs; ESI economic confidence -German Ifo Business Climate, GfK consumer confidence, GDP, trade prices -ECB: Lagarde, Schnabel, Lane; Financial Stability Review; October policy account -UK data on PMIs, CBI Distributive Trades Survey, Nationwide house prices Week Ahead: Virus Versus Vaccine and the V-Recovery

On November 23, 2020

The second wave of Covid infections globally and increasingly stringent lockdowns which in turn have led to a resurgence of uncertainties over the near term growth outlook. And they are overshadowing the positive vaccine developments that offer a more optimistic view for the medium term. Granted, moderation in activity was widely expected after the Q3 surge as economies reopened following the pandemic shut-downs. But while the new restrictions are less onerous, winter conditions will exacerbate the negative effects and will add to worries over a dreaded double dip recession. Concurrently, U.S. growth is seen at risk given the lack of additional fiscal stimulus with many of the relief measures expiring at the end of the year. Hence, attention will be split between the virus and the lockdowns, and the cornucopia of data that will reflect more of the Q4 economy. In Europe, November confidence numbers will be in focus, as well as ongoing Brexit talks. Asia's calendar is thin, likely to keep the focus on virus developments globally.

NORTH AMERICA

In the U.S., Wall Street and Treasuries saw rangebound, cautious trading last week as many crosscurrents buffeted the markets -- rising virus case counts, renewed restrictions, vaccine developments, stimulus uncertainties and increasingly dismal growth outlooks -- were all in play. We suspect that this week will feature more of the same in terms of market action, with the focus on the re-ignition of the pandemic and the negative implications for growth. There have been some whispers of dreaded double dip recessions for the U.S. and Europe, although that is not our base case scenario. The calendar will be busy in this holiday shorted week, with numbers condensed into the first three days. November data is at something of premium as it captures the pick-up in virus cases and ratcheting up of restrictions since October. Consumer confidence (Tuesday) is expected to rise to 104.0 from 100.9 in October. The index has improved from a 6-year low of 85.7 in April. The revised November Michigan sentiment report (Wednesday) is expected to show a boost to 79.0 from the lean 77.0 preliminary reading, versus a 7-month high of 81.8 in October. Confidence measures were oscillating near historic highs before being crushed by COVID-19, only to bounce higher after the plunge in Q2. Notably, it is remarkable how firm the consumer measures have stayed relative to prior recessions, suggesting unexpected resilience on the part of households. The housing market remains of considerable interest as it's one of the leaders of the pandemic recovery. The surge in demand following the reopening of the economy amid the shift in consumer preferences toward more spacious, single family homes in suburbia given remote learning and extended work-from-home arrangements, continue to underpin, along with deteriorating conditions in urban areas and record low mortgage rates. These factors are also causing a de-linking of the housing cycle from the typical school year trends. We expect a 0.6% October increase for new home sales (Wednesday) to a 965k pace from 959k in September, leaving sales just under a 14-year high of 994k in August. Durable goods orders (Wednesday) are seen rising 1.0% in October with a 2.0% climb in transportation orders. A 0.1% gain in personal income (Wednesday) during October is projected after the 0.9% increase in September. Consumption should rise 0.6% after the 1.5% bounce in September. Recall that April income received a sizable boost from the CARES Act, but that has been partly unwound in each month since. Declining jobless benefits have also been a factor undermining income. Speaking of which, initial jobless claims (Wednesday) for the week of November 21 should decline -22k to 720k, after a 31k bounce to 742k from 711k. The second look at Q3 GDP (Wednesday) will be of some interest, even though Q3 is well in the rear-view mirror. The earnings calendar continues to tapper off, with a spare slate due this week. Monday has BHP, Agilent, and Warner Music. Tuesday brings Medtronic, Vmware, Autodesk, Dell, Analog Devices, Best Buy, HP, Hormel Foods, Dollar Tree, Burlington Stores, J.M. Smucker, and Autohome. Wednesday reveales Deere & Co. and Trip.com. No releases are due Thursday and Friday. Heavy Treasury supply hits and like the data, will be condensed into the first part of the holiday abbreviated week. The market will have to absorb a record $169 bln in 2-, 5-, and 7-year notes. The total package was boosted by $7 bln with the volume of each issue increased to new all-time highs. Treasury is selling $56 bln in 2-year notes (Monday), $57 bln in 5-year notes (Monday), and $56 bln in 7-year notes (Tuesday). The shorter notes were bumped up by $2 bln each, and the 7-year was boosted by $3 bln. The debt managers also outlined a $24 bln reopened 2-year FRN (Tuesday), and $105 bln in 3- and 6-month bills (Monday). The doubling up of coupon auctions, as will be the case Monday, typically does neither issue any good. Treasuries richened on Friday. with the wi yields dipping slightly, leaving the 2-year at 0.165%, the 5-year at 0.385%, and the 7-year at 0.620%.   In Canada, the calendar has a drought of data following the deluge last week. Average weekly earnings for September are due Thursday, but the report is always overlooked. The CFIB's Business Barometer for November may be of some interest, but again it is not a market mover. BoC Deputy Governor Gravelle speaks on (Monday), providing "Assessment of risks to the stability of the Canadian financial system, including risks stemming from the COVID-19 pandemic." Senior Deputy Governor Wilkins participates in a panel (Tuesday) on "New Policy Frameworks for a Lower-for-Long World."

ASIA

Focus will remain on Covid developments as markets continue to walk the tightrope between rising infection, hospitalizations, and deaths, and hopes for a sooner rather than later rescue from vaccines. The economic outlook remains cloudy, though hopes are that the globe will begin to turn the corner at the start of the New Year. This week's regional calendar is quite light, with no data due from China. Japan will be on holiday Monday for Labor Thanksgiving Day, and later in the week will release November Tokyo CPI. Price, employment, and production data dot the calendars elsewhere. The only central bank meeting will be South Korea's BoK, where no change to its 0.50% repo rate is expected. Japan will be closed (Monday) for Labor Thanksgiving Day. October services PPI (Wednesday) is expected to have fallen to a -0.5% y/y rate of contraction after accelerating to a 1.3% clip previously, which was the fastest since March. Prices were hit by the pandemic shutdowns during the spring. Tokyo November CPI (Friday) is penciled in falling to a -0.5% y/y rate from -0.3% overall. The October rate was the first negative print since October 2017 and was the fastest rate of decline since March 2017. The core rate is seen sliding to -0.7% y/y from -0.5%. The October drop was the largest since December 2016, and a figure in line with our projection would be the fastest rate of contraction since March 2011. South Korea's BoK meets (Thursday) and is expected to leave its repo rate unchanged at 0.50%. It's been on hold since the quarter point cut in May from 0.75%. Policy was eased by 50 bps on March 16. The year began with the rate at 1.25%. November consumer sentiment is due Tuesday. Taiwan October industrial production (Monday) should slow to a 6.0% y/y rate of expansion from 10.7%, while October unemployment (Monday) is seen steady at 3.8%. October leading indicators and GDP are due Friday. Singapore October CPI (Monday) is seen unchanged, as it was in September. Q3 GDP (Monday) will likely be revised up to -6.0% y/y from -7.0%. October manufacturing production (Thursday) is forecast at 12.0% y/y from 24.2% previously. In Thailand, October exports (Monday) likely fell at an -8.0% y/y pace from -3.9% in September. October manufacturing production (Wednesday) is anticipated at -2.0% y/y from -2.8%. Hong Kong October trade (Tuesday) should see the deficit narrow slightly to HKD 12.2 bln from 12.7 bln. Malaysia October CPI (Wednesday) is estimated at -1.4% y/y, identical to September. Australia's calendar has a speech by Deputy Governor Debelle (Tuesday) at the Australian Business Economists webinar. At the meeting this month, the RBA increased stimulus to ensure recovery. As expected, the bank announced a package of measures designed to secure a rapid recovery from the crisis now that lockdowns have lifted. The RBA cut its key interest rate to 0.1% from 0.25%, as was widely anticipated. It also announced that it will buy AUD 100 bln of government bonds with maturities of around 5-10 years over the next six month. Furthermore, the bank announced that the rate paid to commercial banks for their deposits at the central bank will be cut to zero. The focus is on lowering refinancing costs. On negative rates, the Governor said he sees no appetite to go there. Economic data is sparse this week, but does have private capital expenditures (Thursday), expected to decline -3.0% in Q3 (q/q, sa) after the -5.9% drop in Q2. New Zealand's docket has Q3 retail sales (Monday), expected to rebound 16.0% after the 14.6% plunge in Q2 (q/q, sa). The trade report (Thursday) is projected to show a NZD -1.2 bln deficit in October following the -1.0 bln shortfall in September. The RBNZ publishes the Financial Stability Report (Wednesday). The next 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.

EUROPE

Eurozone: vaccine news continue to look promising but progress on Brexit remains slow and the European Commission reportedly briefed envoys from the EU's 27 member states that talks may have to be extend through to early December. Meanwhile there were reports that some EU leaders want to clarify to chief negotiator Barnier that no deal is better than one that would potentially damage the single market. According to Bloomberg, some members of the bloc have called for contingency plans to be stepped up. The most likely outcome remains a limited and narrow deal that will likely leave both sides on course for prolonged trade squabbles in the future if and when the U.K. diverges from EU standards and the EU retaliates. No wonder then that firm and enforceable rules on the governance of an agreement is one of the key points for the EU in any deal and reportedly one of the sticking points at the moment. The data calendar is very busy this week, with the remaining confidence numbers for November unlikely to make pretty reading. Markit PMIs kick off the data round on Monday and we are looking for a further decline in manufacturing confidence to 52.0 (median 53.2) from 54.8. Services will be hit even harder by lockdowns -- the respective PMI is likely to fall back to 41.9 (median 42.0) from 46.9, which should leave the composite at 47.0 (median 45.6) from 50.0. That would signal a fall back into contraction territory, and will likely be mirrored by a weak ESI Economic Confidence number (Friday), which we expect to show a drop to 86.0 (86.5) from 90.9. In Germany, where lockdowns have been less strict than elsewhere and where the manufacturing sector continues to benefit from the ongoing recovery in major export markets such as China, the situation is not quite as bleak as in countries like Italy or Spain. Still, the key Ifo Business Climate index (Tuesday) is nevertheless expected to drop back markedly to 90.3 (median same) from 92.7. Eurozone M3 money supply growth (Thursday) should continue to show a huge amount of money creation thanks to the ECB's generous liquidity provision. Preliminary French HICP numbers (Friday) are unlikely to indicate a turnaround on the inflation front and German Q3 GDP is too backward looking to have much of an impact, although the breakdown, which will be released for the first time, may attract some interest. 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.: trade talks between the EU and UK are commencing via video conference after one of the EU's team tested positive for Covid. The latest in a series of deadlines that have so far come and gone, now appears to be mid next week. An EU source cited by the UK's Sun tabloid said that talks can only continue to mid next week before "time will get the better of us." Time really is running out now given the time needed for the ratification process before the UK's exit from the common market and customs union on January 1. Fishing rights and level playing field rules remain the stumbling blocks between the EU and UK, and neither side is showing any sign of wanting to make the first move in the concessions game. It would be imprudent to rule out the risk of a no deal, but we still expect win-win will prevail rather than lose-lose, and that an accord will be reached. We expect the pound to rally on any concrete news that a deal has been reached. Canada, meanwhile, looks set to be the latest to sign a continuity agreement with the UK, which would maintain trading on the largely the same terms as under the prevailing agreement with the EU. The UK data calendar this week features the preliminary UK PMI reports for November (Monday). Given the Covid-related lockdown restrictions that have been heavily focused on the hospitality and retail sectors, the consensus expectation is for a sharp fall in the dominant services PMI reading to 42.5 from 51.4 in October. The preliminary manufacturing PMI headline is expected to fare better in declining more moderately to 50.5 from 53.7. The composite PMI reading is seen dropping to 42.5 from 52.1, which would signal that the private sector is once again back in contraction, which is looking like the second dip of a double dip recession. Other data out of the UK will be second tier. Switzerland: The Swiss data calendar is quiet.