Good Morning,
Market Headlines
US equities made fresh record highs – the S&P500 is currently up 0.3% - despite Covid cases in the US continuing to rise. US fiscal stimulus talks were seen to be progressing favourably. The risk-seeking mood didn’t extend to other asset classes, with bond yields slightly lower and risk-sensitive currencies little changed. Commodities, Brent crude oil futures rose 0.2% to $48.90, copper fell 0.4%, iron ore rose 0.1% to $148.70 – an eight-year high, and gold rose 0.4%.
Currency
AUD/USD: 0.7400 – 0.7435
EUR/USD: 1.2096 – 1.2134
GBP/USD: 1.3289 – 1.3392
USD/JPY: 103.96 – 104.20
USD/CAD: 1.2769 – 1.2825
NZD/USD: 0.7023 – 0.7053
AUD/JPY: 77.03 – 77.36
AUD/NZD: 1.0517 – 1.0553
AUD Thoughts
Busy day ahead on the data front with economic releases from China along with monetary policy decisions from the EBC and BOC. China kicks off proceedings with CPI inflation potentially getting to zero for November. Despite that, core inflation could pick up after staying at its decade-low for four months in a row. PPI deflation may ease, supporting corporates profit and capex in the coming months.
In its last policy decision, the ECB took the unusual step of pre-committing to “recalibrate its instruments” at the December meeting. Further ECB commentary have now cemented market expectations around an envelope and time extension of the PEPP and further easing of financing conditions via the PEPP. Based on economists’ analysis, the base case appears to be for a EUR500bn increase in the PEPP envelope to EUR1.85tn, enabling purchases to continue at their current pace for another 6 months until end-2021. A six month extension of the TLTRO discounted-rate window is also largely expected, as well as easing of collateral requirements. With expectations so cemented, binary risk to the EUR exist. The rates market is pricing in only 1.5bps of rate cuts for this meeting so a deposit rate cut would take the market by surprise and would be strongly EUR negative.
In North America, the Bank of Canada rate decision is expected in the early hours of tomorrow morning. The BoC should hold the policy rate at 0.25%, while also sustaining its current QE program. The offsetting forces of increasing severity of COVID-19 spread and the positive 2021 vaccine outlook may feature prominently in the statement. Recent currency strength may also be highlighted.
AUD/USD peaked at 0.7435 overnight with offering interest now growing ahead of the recent high of 0.7453. Whilst topside momentum has stalled for now, buying interest will likely materialise if we dip back to the 0.7350/70 region.
Event Risk Data Today
EU – ECB rate decision
CN – November CPI
CA – BOC rate decision