We are now heading into what would typically be a quiet time of year when everyone spends time with their loved ones and market activity is more muted. This isn’t a normal year, though, and while volumes may be low, activity will be anything but.
U.S.
Congress appears to be finalizing the final details of a coronavirus relief bill that will include stimulus cheques. The need for more support is still warranted despite recent improvements with the economy. The short-term outlook will likely be covered with extended lockdowns that will cripple many small businesses. Support from both the Fed and the Biden administration suggest stimulus efforts will remain in place for the early part of 2021.
On the data front, much attention will be on the final third quarter GDP readings, December consumer confidence, preliminary November durable goods data, and weekly jobless claims. The economy is starting to show deeper signs of slowdown and that could increase expectations that the next nonfarm payroll report will see job losses.
U.S. Politics
It is all about the Georgia Senate runoffs. The latest polls show Republican Sen. David Perdue has a 48.9% to 48.2% edge against Democrat Jon Ossoff and Republican Sen. Kelly Loeffler is tied with Democrat Raphael Warnock. Immediately after Election Day it seemed Democrats failed to capitalize on delivering a blue wave, but that might not be the case. Both races are too close to call and no one can be confident on what turnout to expect. The base case is still that Republicans will win one of the Senate races and secure control of the Senate, but that is no longer a foregone conclusion.
EU
The region is slowly going into lockdown as cases surge across the continent. The ECB provided more stimulus earlier this month so will likely be quiet for a while now. Brexit still a risk, with differences remaining.
Brexit
Significant weekend risk again after the European Parliament insisted on a deal being agreed by Sunday, after which it won’t be ratified this year. That’s about as firm a deadline as we’ve seen so far and could force the necessary compromises to get it over the line.
The only caveat being the possibility of a provisional application, which could tie us over until the EP approves in January. I can’t help but think after all these years, that’s the only way it’s going to go, which means this could go beyond Christmas. It wouldn’t be Brexit if it didn’t.
UK
With more regions being added to the list of tier three and households being allowed to mix at Christmas, there’s a sense of inevitability about another lockdown in January, maybe going into February. Brexit is the key risk for the UK, with COVID vaccinations now under way.
Turkey
A normalization of policy action has helped the lira rebound in the final months of the year, with Turkey going into the new year with a new central bank head and finance minister and higher interest rates. This may continue for some time, reducing some downside risks for the currency. But this is a currency that never seems too far away from a crisis. The rebuild in under way.
China
China Loan Prime Rates decision Monday. It would be a huge surprise if rates were cut with PBOC keeping liquidity tight as part of the deleveraging process. We expect the next move in rates to be higher at the end of 2021.
New Zealand
Australia/New Zealand travel bubble already in doubt after Sydney COVID-19 outbreak. Potentially weighing on consumer discretionary and leisure/tourism equities.
The New Zealand dollar remains very strong as a proxy to the 2021 global recovery.
Country effectively shuts for two weeks from this Thursday.
Australia
Australian equities under pressure on Friday after COVID-19 outbreak in Sydney. States have rapidly reimposed movement restrictions with New South Wales.
Both Australian equities and the Australian dollar could face significant pressure next week if the COVID-19 situation in Sydney escalates rapidly.
Japan
The Bank of Japan meeting was a non-event. Japan releases Retail Sales and Construction Orders on Christmas Day as Japan markets are open. Large misses have caused volatility in USD/JPY on Christmas Day due to restricted liquidity.
Equities and currency otherwise at the mercy of U.S. fiscal progress in U.S. Congress.