04.12.2020 - As of noon on Friday, global equities were near record-high territory, underpinned by increased hopes of additional near-term US fiscal stimulus and on expectations of a fast rollout of several coronavirus vaccines as markets continue to look past the worsening COVID-19 trend. The yield on the benchmark US 10-year note rose to 0.95% from 0.86% a week ago while the price of a barrel of West Texas Intermediate crude oil rose $0.75 to $46 amid a global reflation trade that is lifting commodities and undermining the US dollar. Volatility, as measured by the Cboe Volatility Index (VIX), was little changed at 21.
MACRO NEWS
Payrolls unexpectedly weak but may increase urgency on Capitol Hill The United States added just 245,000 new jobs in November, roughly half of what markets had anticipated, though the nation's unemployment rate declined 0.2% to 6.7%. A record surge in coronavirus cases contributed to the slower pace of hiring. Service sector jobs became scarcer amid a reduction in mobility as local governments increased restrictions to slow the spread of the virus. Markets have thus far taken the disappointing news in stride on the belief that worsening virus trends and deteriorating economic data will spur negotiators on Capitol Hill to agree on a fresh round of rescue funding. Talks were already intensifying before the data were made public, so the headlines should only add to lawmakers' sense of urgency. Early this week, a bipartisan group of lawmakers proposed a $908 billion package that has become the basis for the ongoing talks. Aid for state and local governments and liability protections for businesses remain stumbling blocks.
New measure to increase scrutiny of US-listed Chinese companies The US House of Representatives unanimously approved the Holding Foreign Companies Accountable Act this week. The measure will force a trading suspension of US-listed Chinese companies if US regulators are unable to inspect the companies' audits for three consecutive years. US President Donald Trump is expected to sign the bill into law. Chinese authorities, claiming national security concerns, currently prohibit the inspection of domestic audits by foreign entities. If that situation is not resolved in the coming three years, it is likely that those listings will move offshore, probably to Hong Kong, a market noted for its ample liquidity, strong regulatory framework and commitment to the free movement of capital.
UK approves coronavirus vaccine; US not far behind This week the United Kingdom became the first developed country to approve a vaccine to protect against the coronavirus. 800,000 doses of the Pfizer-BioNTech vaccine will likely be distributed in the coming days. US emergency-use authorization for a pair of vaccines is expected from the US Food and Drug Administration in the next few weeks. Doses are being prepositioned around the country to speed their distribution once approval is received. Frontline medical workers and those in nursing facilities are likely to be among the first recipients, with the general public expected to be vaccinated by spring. Up to 40 million vaccines doses will be available by year-end, Vice President Mike Pence told governors this week.
Brexit negotiations: Time to fish or cut bait The UK has set an informal deadline of Monday to wrap up seemingly endless negotiations over a trade agreement with the European Union. Access to UK fisheries remains a major sticking point, as does state aid to industries. The two sides were thought to have been close to an agreement, though last-minute protestations by French officials that EU negotiators were giving away too much has apparently stalled progress. As a result of the ongoing uncertainty, preparations for a no-deal outcome have begun in the EU.
Biden fills out economic team US President-elect Joe Biden filled out his economic team this week with the nomination of Cecilia Rouse as chair of the Council of Economic Advisers, Neera Tanden to lead the Office of Management and Budget and Adewale "Wally" Adeyemo to be Janet Yellen's deputy at the Department of the Treasury. The three will require Senate confirmation. Tanden, currently head of the Democratic-friendly Center for American Progress, has drawn opposition from Senate Republicans over her pointed criticism of them. Biden also named Brian Deese, a former official in the Obama administration, to head the National Economic Council, a position that does not require Senate confirmation.
EU threatens to exclude Hungary and Poland from rescue fund With Hungary and Poland continuing to block approval of the European Union budget after the countries were singled out for their perceived lack of commitment to the rule of law, EU officials this week threatened to exclude the two nations from the coronavirus rescue fund that is a central feature of the budget. Hopes for an agreement ahead of next week's European summit are dwindling.
QUICK HITS
It was the strongest November on record and the best month for the S&P 500 in 33 years. Value outperformed growth by nearly 350 basis points during the month while stay-at-home plays underperformed.
US high yields spreads tightened to record lows late this week amid hopes for improved economic growth next year.
The Wall Street Journal reports that OPEC+ is close to a deal that would allow daily crude oil output to increase by as much as 500,000 barrels a day.
Inflation expectations, as measured by 10-year US Treasury Inflation Protected Securities, rose to their highest level in 18 months this week as expectations for an economic rebound in 2021grow.
Japanese unemployment edged up to 3.1% in October from 3.0% in September.
The OECD projects that global GDP will expand 4.2% in 2021 after falling 4.1% this year. A fast vaccine rollout will boost growth and lower uncertainty, the organization said.
Indian GDP fell 7.5% year over year in Q3 after a 23.9% contraction in Q2.
Bloomberg reported that buybacks in Europe are rebounding. After slumping 95% during the summer months, they were just 17% below year-ago levels in November.
Biden said he will leave the phase one US-China trade deal in place while his administration conducts a full review.
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