Market movements were limited on Friday, with trading activity predictably subdued the day after Thanksgiving Day holiday in the US. Equity markets nudged higher, with tech stocks outperforming, while bond yields fell. The USD drifted lower to reach a fresh multi-year low. The NZD spent the session consolidating above 0.70.
There’s not much to report by way of market-moving developments on Friday. US markets were open but, with many US-based market participants still on holiday for Thanksgiving weekend, trading volumes were very light. At the margin, market sentiment was aided by Trump confirming that he will leave the White House if the Electoral College affirms Biden’s victory in the election. Over the weekend, Iran’s top nuclear scientist was assassinated, raising geopolitical tensions in the region, although we suspect there won’t be much spill-over to markets at this stage.
Risk asset markets seem to have taken the recent news on the AstraZeneca/Oxford University Covid-19 vaccine in their stride. Doubts have been raised about the vaccine’s trials and AstraZeneca now plans a new global study, which will delay the regulatory approval process and its distribution. That didn’t stop the S&P500 gaining another 0.25%, taking its gain on the week to 1.6% and leaving it at a record high. The Russell 2000 small cap index rose 3.9% last week, indicative of growing investor confidence that economies will be able to reopen next year, boosting cyclical and smaller stocks.
In contrast to recent trends, tech stocks outperformed on Friday, with the NASDAQ increasing 0.9%. Black Friday, typically one of the biggest shopping days of the year, took place in the US amidst unusually subdued crowds. The threat of Covid-19 has meant many consumers have switched to buying online to access the sales.
Some European countries are looking at loosening social distancing restrictions as the numbers of new Covid-19 cases slow. Ireland said it would ease rules from December 1st, allowing stores, gyms, and churches to reopen and people to travel further than 5km from home. In France, non-essential businesses, albeit not bars and restaurants, were allowed to re-open over the weekend, with a further easing in restrictions planned for mid-December. Vaccination will start soon in some countries, with the FT reporting that the UK could start using the Pfizer/BioNtech vaccine from December 7th, after a fast-tracked regulatory approval, while US health expert Fauci said he expected distribution of that vaccine, as well as Moderna’s, to start before Christmas.
The USD has continued to drift lower, with the Bloomberg DXY index reaching a fresh 2½ year low. Risk appetite remains buoyant and investors are growing more confident in a synchronised global economic recovery next year, two factors which are typically associated with USD weakness.
Except for the GBP (see below), USD weakness was broad-based, ranging from 0.1% for the Swiss franc to 0.5% for the Norwegian krone. The EUR increased 0.4%, taking it up to 1.1960 and again within sight of the psychologically important 1.20 level.
The AUD has been unaffected by Friday’s news that China would impose anti-dumping duties on Australian wine, of between 107% and 212%. The move wasn’t a huge surprise after China launched an investigation in mid-August. The new tariffs on Australian wine are the latest in a series of measures taken by the Chinese government recently as tensions between the two countries escalate. The AUD appreciated 0.3% on Friday to close the week at 0.7385, near its recent highs.
Like the AUD, the NZD made modest gains on Friday, rising 0.3% to 0.7030. That’s the highest closing level for the NZD since June 2020. The NZD has increased over 6% this month amidst broad-based USD weakness, rising risk appetite and the post-MPS repricing of OCR expectations, with markets pricing negative rates out of the NZ interest rate curve.
The GBP was the clear underperformer on Friday, falling 0.5% to 1.3310. The fall in the GBP likely reflects some investor nervousness around Brexit negotiations, as the year-end deadline fast approaches (UK-EU trade will fall back to WTO trading rules unless a deal can be reached in time). Both UK PM Johnson and EU highlighted there were “substantial and important differences to be bridged”, with the two sides reportedly still at loggerheads over fishing rights.
Global rates moved lower on Friday in thin trading conditions. The 10-year Treasury yield fell 4bps from Wednesday night’s close to finish the week at 0.84%. Global rates have been range-bound the past few weeks despite the positive vaccine developments and repricing in other asset classes. NZ rates were little changed in light trading on Friday, with swap rates 1bp lower across the curve.
In the week ahead, US nonfarm payrolls are expected to show a 500k rise in employment and 0.1% decline in the unemployment rate, to 6.8%, with the survey largely pre-dating the re-imposition of restrictions. The ISM surveys are also released in the US. The Official Chinese PMIs are reported today, with consensus seeing still strong momentum. There is plenty of central bank speak this week, including from Fed Chair Powell and RBA Governor Lowe. Locally, there is the final release of the November ANZ business survey and monthly employment data (filled jobs) today.
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