After a run of four daily losses, the S&P500 is on a much better footing, with optimism on a US fiscal stimulus package, a Brexit deal and another vaccine likely to be rolling out next week. The US 10-year rate has pushed higher and the USD shows a broadly based fall, with GBP leading the charge higher.
More good news than bad news headlines are supporting risk assets, seeing the S&P500 up 0.8% after a cumulated loss of about 1½% over the prior four trading sessions. The Nasdaq index shows a decent gain as well, unperturbed by news of the EU publishing new draft legislation that would allow it to heavily fine or break up “Big Tech” if companies engaged in anti-competitive behaviour. Furthermore, the firms would have to take more responsibility for illegal behaviour on their platforms. However, there is expected to be a long delay before the new rules come into force, at least two years, as the proposal gets pushed through the EU Parliament. And for the US, increased regulatory risk for Big Tech would require, at a minimum, the Democrats to win the Georgia state run-off early January.
Yesterday, the US Electoral College voted for Biden as President and a string of Republican Senators finally acknowledged his win, easing the path for Biden’s transition to the Presidency on 20 January, as if there was any remaining doubt.
The US FDA found Moderna’s COVID19 vaccine to be “highly effective”, paving the way to get approval and ready for use by next week. This follows the beginning of the widespread use of the Pfizer/BioNtech vaccine.
There is hope that lawmakers can agree to vote on a $748m fiscal stimulus bill by the end of the week, which leaves the contentious issues out of the original $900b relief package. There is widespread support for the smaller bill, including Senate Republican leader McConnell and we’re waiting on the nod to be given by Democratic leaders Pelosi and Schumer.
On the economic front, China monthly activity data for November met market expectations, showing further evidence of economic recovery, with both industrial production and retail sales increasing to their highest annual growth rates for the year. US industrial and manufacturing production for November were on the positive side of expectations.
More positive risk sentiment and a more positive vibe on the fiscal front sees the US 10-year rate push higher, up 1-2bps for the day to 0.91%, ahead of the US FOMC meeting announcement tomorrow morning.
The USD is on the back foot yet again, with the dollar indices down in the order of 0.2-0.3%, moderated to the extent that EUR is flat at 1.2150. GBP is leading the charge, up 0.75% overnight to 1.3440, as the market becomes more hopeful of a Brexit deal. A reporter from the BBC tweeted that the “big buzz” among Tory MPs is that the UK is heading towards a Brexit deal with the EU and that the Eurosceptics in the party were being reassured they will be happy. We have long expected a deal, and ignored the political posturing, and a positive outcome would see further strength in GBP and NZD/GBP threatening 0.50.
The NZD has been tightly bound trading roughly between 0.7060 and 0.7090, currently at the top end of that range and still reluctant to push sustainably above the 0.71 mark for now. The latest GDT dairy auction didn’t surprise with its 1.3% price gain, with whole milk powder up 0.5%.
The AUD remains well supported, with no evident sustained impact from its (one-sided) trade war with China, after news that China had formally banned Australian coal imports, leaving more than 50 coal ships in the area with nowhere to offload their cargo. The AUD has been one of the better performers overnight, up 0.6% to 0.7565 and seeing NZD/AUD fall to a fresh monthly low below 0.9380, continuing its path to a fairer level closer to 0.90 on our short-term fair value model.
The domestic rates market remained subdued, with little activity. NZGB yields lifted 1-2bps across the curve, while swap rates rose by 1bp.
The economic calendar in the day ahead is full. NZ’s annual current account deficit as a percentage of GDP likely shrunk to its lowest level in 20-30 years, depending where it lands up. Meanwhile, the strong bounce-back in growth means a much better set of government fiscal accounts, reducing the need for debt issuance and reducing the necessary bond-buying of the RBNZ to keep yields in check. While both releases won’t necessarily surprise, they are supportive for the NZD. The highlight tonight will be the Markit PMI figures across Europe and the US. December figures are expected to be mainly weaker versus November – recall the US figures moved the market last month when the data positively surprised.