As we head into December and the Christmas season this week, there are still a number of important market highlights to look out for. Data releases include the US jobs report and the November PMIs, while Fed chair Jerome Powell and ECB president Christine Lagarde will both be speaking through the week.
Otherwise, attention will remain on the Brexit negotiations, with just weeks remaining until the year-end deadline, and as ever the Covid pandemic along with potential progress on a vaccine will remain an important focus.
Overnight we saw China’s November official PMIs with manufacturing printing at 52.1 (vs. 51.5 expected), the highest since September 2017, with services at 56.4 (vs 56.0 expected) bringing the composite reading to 55.7 (vs. 55.3 last month). The region has been the clear outlier in terms of economic numbers, as it has been able to better control the outbreak of the virus, thus limiting the impact on economic activity.
There are a number of major data highlights this week that will help set the tone moving into year-end. Starting with the US jobs report for October on Friday, the consensus is looking for a further 500 thousand increase in nonfarm payrolls, and a fall in the unemployment rate to 6.8 per cent.
Though this would be further progress from the situation in the spring, it would still be the slowest monthly jobs growth since the massive contractions in March and April, and leave the total nonfarm payrolls number over 9.5 million beneath its pre-COVID peak back in February.
Economic data is expected to remain largely muted until several populations’ are vaccinated and business, as well as consumer confidence returns. This is because of the fear of increased or extended restrictions due to the persistently elevated level of COVID cases in the Western hemisphere.
Meanwhile on the PMIs, the flash readings we’ve already had showed a noticeable deterioration in Europe as much of the continent headed into renewed lockdowns, so it’s clear they’re having an effect on economic activity.
It will be interesting to gauge what is happening in the countries where there are not flash readings however, including a number of emerging markets. Also in focus will be the euro area’s inflation estimate for November, as for the previous three months it has been in deflationary territory.
Elsewhere, Brexit will remain in the spotlight this week, with little more than a month until the end of the transition period on 31 December 31. Last week, Michel Barnier said that he and his team were no longer in quarantine, meaning that physical negotiations can continue, and he will be travelling to London to continue the negotiations.
Negotiations from both sides remain ardent; however, I suspect that given the economic ramifications brought about by the pandemic, it is becoming increasingly important for both counterparties to see these negotiations concluded sooner rather than later.
The latest on the vaccine are reports suggest that the UK will be the first country to approve the Pfizer/BioNTech vaccine, perhaps even early this week, with a view to starting inoculations as soon as next Monday. Meanwhile, the US Surgeon General Jerome Adams has said that Pfizer/ BioNTech is scheduled to submit an Emergency Use Authorisation request for their vaccine on December 10 followed by Moderna on December 18 while Anthony Fauci said that vaccines would likely roll out from the middle to end of December.
Finally, there are a number of important central bank speakers this week, with Fed chair Powell and Treasury secretary Steven Mnuchin appearing before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday. The Fed will also be releasing their Beige Book on Wednesday.
Meanwhile ECB president Lagarde will be speaking at the European Policy Centre Forum today, before she appears at an Atlantic Council event the following day. No major policy news is expected given the lack of progress in economic data; however, analysts will be looking for hints of further support measures.
Disclaimer: This article was written by Simon Psaila, investment manager at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd, which is licensed to conduct investment services business under the Investments Services Act by the MFSA and is registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.
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