Last week was a mixed week across markets and ended with a risk-off bias in spite of some further encouraging developments of the vaccine front: Early in the week, Moderna announced that its vaccine was 94.5% effective in trials, then midweek Pfizer BioNTech announced that revised data showed its covid vaccine was 95% effective which was followed by the news it had filed for emergency use authorisation with FDA at the end of the week. However, news of continued rising covid cases in the US and state restrictions (e.g. New York switching schools to remote learning), little sign of progress on a further stimulus package plus US Treasury Secretary Steven Mnuchin ending several emergency lending programmes weighed on sentiment. The latter was unexpected with Jerome Powell advocating the continuation of these programmes earlier in the week and the Fed issued a statement in response: “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy”. The Biden transition team also voiced their disapproval of the move although Mnuchin on Friday talked of instead directing the funds to grants to businesses and the unemployed. Over the week the S&P 500 index fell 0.77% and the Dow Jones index, after making a new high on Monday, fell 0.73%. Other global equity markets fared better broadly ending the week in positive territory in local currency terms. The risk-off bias supported USTs: The UST 10-year yield tightened 7bps to 0.83%. The UST curve flattened with the 2s30s spread tightening 10bps to ~135bps.
In Asia, the signing of the Regional Comprehensive Economic Partnership trade deal between 15 nations (ASEAN-10, China, Japan, S.Korea, Australia and New Zealand) which together comprise nearly 1/3rd of the world population and GDP was a positive development. Elsewhere, the EU hit the newswires as the EUR1.8tn budget and recovery fund came under threat as Hungary and Poland threatened to veto the approval as they objected to the rule of law clauses. Following an EU meeting on Thursday Angela Merkel indicated talks would be held to resolve the issue. ECB President Christine Lagarde emphasised the importance of getting the recovery fund through given the impact of rising covid infections and the reinstatement of restrictions at a committee hearing at the European Parliament: “The Next Generation EU package must become operational without delay -- this is critically important”. Brexit talks continued during the week with reports of some progress being made but still a lot of ground to close to reach an agreement.
In the week ahead, vaccine developments and the path of covid infections, particularly in the US, will be closely monitored with some suggestions that the US Thanksgiving Holiday on Thursday could become a ‘super-spreader’ event. With US bond and equity markets shut on Thursday for the holiday the minutes of the FOMC November 4-5 meeting due on Wednesday and the minutes of ECB meeting for October on Thursday are likely to be key focuses for markets. Investors will be looking at the FOMC minutes for any discussion on adjustments to the asset purchase program in particular and the ECB minutes for discussion of any easing measures ahead of the central banks’ December meetings. The ECB Financial Stability Review is also due for release on Wednesday. A number of central bank speakers are due to appear: Fed speakers include Mary Daly, Charles Evans and James Bullard. ECB speakers include Chief Economist Philip Lane at a panel discussion at the IMF event “New Policy Frameworks for a ‘Lower-for-Longer” world” on Tuesday, Isabel Schnabel and Fabio Panetta are also due to speak at other events. In the UK, BOE Chief Economist Andy Haldane is due to speak on Monday followed by Jonathan Haskel BOE MPC member on Tuesday. Plus, the UK Chancellor Rishi Sunak is also due to outline the government spending plans for the next year on Wednesday.
Key data releases over the week include the Markit PMI data on Monday: This includes the November manufacturing and services PMIs for the US, Euro area, France, Germany and the UK where the focus will be the impact of continued covid infections and lockdowns on activity. In the US, the October Chicago Fed National Activity Index is also due for release on Monday and on Wednesday the 2nd estimate for USQ3 GDP is due for release along with October personal spending, PCE data and the preliminary data for the October US durable goods orders. Other European data releases include the November release of German IFO for business climate due on Tuesday and the final Q3 GDP estimate for Germany and then for France later in the week. Brexit talks are also due to continue as the time to reach an agreement with the EU gets ever tighter.