Financial market overview for the week of December 11: brexit negotiations, renewed outbreak, emergency vaccine authorization and the us fiscal stimulus package are the highlights of the week. The back-and-forth in risk sentiment kept the dollar index broadly weak throughout the week, but with the U.S. fiscal stimulus talks stalled again and Brexit talks dragging on, the risk of a no-deal brexit has risen, giving the dollar another safe-haven bid. Meanwhile, hopes that the global economy will rebound and the epidemic will subside by 2021 have investors betting on riskier currencies linked to higher commodity prices, such as the Australian and Canadian dollars, which have both hit more than two-year highs. The stabilization of the dollar and the strength of Bitcoin erased almost all of the gains made by traditional safe-haven assets during the golden week. Crude oil prices, buoyed by a possible rebound in demand following the launch of the vaccine, both posted weekly gains.
Epidemic: DEATHS and hospitalizations for COVID-19 in the United States continue to grow at an alarming rate and are likely to lead to more restrictions and lockdowns. Another 2,902 people died in the United States on Thursday, a day after a record 3,253 were killed. This pace is expected to continue for the next two to three months until the vaccine is widely distributed. Meanwhile, the US producer price index recorded a 0.1 per cent monthly gain in November, its lowest since June, supporting the view that inflation will remain subdued in the near term as the COVID-19 outbreak damps Labour markets and demand for services. This suggests that if fiscal stimulus does not arrive in time, markets will need to accelerate vaccination efforts to contain the epidemic as quickly as possible and help sustain the recovery.
Currency markets: With global economic growth picking up and the Federal Reserve expected to keep interest rates near zero for several years, most analysts expect the dollar to weaken further. That was one of the main reasons the dollar stayed low this week. But the dollar has been bolstered by a renewed flight to safety as geopolitical risks continue to emerge, and if the U.S. economy continues to recover with the help of vaccines, the dollar could also get more of a boost, which could have unintended consequences. Johnson and Von der Leyen gave negotiators until Sunday night to break the deadlock over fishing rights and EU demands that Britain face consequences if it breaks EU rules in the future. The options market reflects traders preparing for chaos. One-cycle implied volatility in sterling has reached a nine-month high.
Commodity markets: Gold, seen as a hedge against inflation and currency depreciation, has risen more than 21 per cent this year, helped by massive government stimulus measures to support economies hit by the outbreak. But it has been hit hard recently by positive progress on vaccines and an impasse in negotiations over fiscal stimulus. Amid mounting pressure from weak jobs data and a surge in COVID-19 infections, US lawmakers are seeking more time to reach an agreement on an economic stimulus package. “You will see higher prices next year, but it will be quite volatile going into the end of the year,” said Chris Gaffney, president of global markets at TIAA Bank.
U.S. and European stocks: European stocks came under pressure as fiscal stimulus talks stalled in the U.S. and the Brexit deadline approached quickly. Volatility is also rising in the U.S. stock market, as lawmakers try to pass a bill by the end of 2020, but remain divided over state and local stimulus, unemployment assistance and stimulus checks.
Highlights of the week:
Us Supreme Court rejects Texas’s bid to overturn Joe Biden’s victory, saying the state has “no standing”
The US Supreme Court on Friday dismissed a lawsuit brought by Texas and backed by President Trump that sought to challenge Biden’s election victories in key swing states such as Pennsylvania, Michigan, Wisconsin and Georgia. That the motion lacked grounds for action under Article 3 of the Constitution, known as “qualification to Sue.”
The Texas lawsuit took the unprecedented step of asking the Supreme Court to declare the electoral college votes in four swing states “uncounted,” thereby nullifying the results in those states.
Biden’s victories in those four states put him over the threshold of 270 electoral votes. Those states have a total of 62 electoral votes, and canceling the results would effectively cancel Mr. Biden’s victory.
The us House of Representatives has slammed Donald Trump for his “premature response” to China, calling on Joe Biden to make major adjustments
Richard Neal, the Top Democrat on the House ways and Means Committee, on Friday attacked President Trump’s “premature response” to China and called for a major policy shift in the US.
Neal urged the Biden administration to develop a plan and investments to counterbalance China, including reactivating cooperation with European Allies.
Neal urged the new administration to accept Europe’s offer to finalize a broad new trade agreement, instead of suspending trade talks and focusing first on domestic issues, as Biden said.
He added that the Trump administration’s “narrow obsession with tariffs and exclusions misses the forest for the trees” and has had little impact on China’s behavior.
Britain is “very, very likely” to leave the EU without a deal
At an EU summit briefing on the Brexit negotiations yesterday, European Commission President Catherine von Der Leyen gave a downbeat outlook, saying a No-deal Brexit was more likely than a deal, sources said.
In an interview today, Prime Minister Boris Johnson said it was “very, very likely” that Britain would leave the European Union without a deal. Prime Minister Boris Johnson told his cabinet last night that Brussels wants to “punish” Britain for refusing to comply with EU rules, warning of the need to prepare for a no-deal exit. The PRIME minister said the EU wanted to treat Britain as a “twin” that would have to replicate what it did in the future, “which is clearly not the sensible way forward”.
Commerzbank analyst Thu Lan Nguyen said the market may have “priced in the expectation of no deal in the next few days”, so the currency market may not be in serious disarray when news of the trade talks ends. “But it’s also possible that the market has a glimmer of hope that there will be an agreement and then is shocked by the news that there will be no agreement, which will cause a lot of volatility.”
America’s fiscal-stimulus talks remain deadlocked
The chances of Congress passing fiscal stimulus any time soon are falling. Some Senate Republicans, including Majority Leader Mitch McConnell, are opposed to a nearly trillion-dollar proposal put forward by some members of both parties last week, with the main disagreements centered on corporate responsibility protections and the scope of aid to state and local governments. On the other hand, Democratic leaders, including House Speaker Nancy Pelosi and Senate Minority Leader Charles Schumer, also oppose the Nearly trillion-dollar White House plan, which differs in whether to provide supplemental unemployment benefits of $300 a week.