Daily Update - 16th December 2020
China’s Industrial Production and Fixed Asset Investment YoY for November rose 7.0% and 2.60%, right on expectations. Retail Sales YoY for November coming in slightly lower at 5.0%. All of the data improved over October, reaffirming China’s remarkable recovery as it leads the world out of the Covid-19 recession. The data has had no noticeable effect on China markets though, with financial markets more concerned about the recent waves of corporate defaults and a tight funding market. The PBOC injected another CNY 950 billion of liquidity via the 1-year MLF’s today. The froth has come off the China fixed income market in recent weeks as corporate credit concerns rise. The Reserve Bank of Australia’s latest meeting minutes were published. Rates are expected to stay lower for longer, for 2-3 years in fact. Inflation will remain subdued, and although vaccine arrival lifts the outlook for 2021, the RBA stands by to do whatever it takes in a very Federal Reserve or ECB fashion. Australian markets are subdued though as China iron ore importers called for a pricing inquiry, adding to Australia’s export woes vis-a-vis China. Nevertheless, it adds more clouds to Australia’s trade outlook in 2021. China won’t escape unscathed either in the longer run. By effectively tearing up their free trade agreement with Australia because Australia said things China didn’t like, it will add even more doubts about what a piece of paper signed by China is actually worth. It’s a particularly busy day ahead on the economic calendar. Prelim December private sector PMIs are due out of France, Germany, and the Eurozone. Expect plenty of influence from the numbers, with manufacturing sector activity likely to need to cushion a slump in service sector activity. From the U.S, November retail sales and prelim private sector PMIs for December will also provide direction late in the session. Expect the retail sales and service sector PMI to have the greatest impact on the day. After the European close, the FED will deliver its last policy decision of the year. While the markets expect the FED to leave interest rates unchanged, the promise of lower for longer is likely. There may also be some optimism towards the commencement of vaccinations in the U.S. Other areas of focus will include the FOMC Economic projections, interest rate projections, and the press conference. Away from the economic calendar, Brexit and COVID-19 news updates, and any chatter from Capitol Hill will need continued monitoring. Yesterday’s Market
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