U.K./EU Trade Talks and U.S. Fiscal Stimulus Negotiations Getting Late

December 2, 2020

Time is fast running out for post-Brexit trade talks between the European Union and British government and for U.S. congressional fiscal stimulus negotiations. Both of these remain bogged down, and failure to compromise would have adverse short-term economic implications. Investors are becoming more uneasy. Sterling dropped 0.9% against the dollar overnight, and U.S. and European share prices slipped overnight.

British officials approved the Pfizer vaccine for Covid-19 for emergency use. New cases and deaths from the disease have accelerated, with the past 24 hours seeing 187k global deaths including about 2,600 in the United States. That’s close to the record, and hospitalizations are at the record high.

Aside from the aforementioned dollar rise against sterling, the U.S. currency overnight rose by 0.4% against the yen, peso and kiwi, 0.2% relative to the euro and 0.1% vis-a-vis the loonie. The dollar remains near multi-month and multi-year lows against numerous currencies and slid overnight by 0.2% versus the Australian dollar and 0.1% against the Swiss franc and Chinese yuan.

Ten-year U.S. treasury and British gilt yields dipped a basis point so far today. The price of WTI oil is down 0.5%, but gold rose 0.4% and is again trading above $1800 per ounce.

Producer price inflation in the euro area has dwelt below zero percent for the past 15 months, but the 12-month rate of decline declined to 2.0% in October from 2.3% in the prior month and 5.0% last May. Prices have been depressed by weak demand, the low cost of energy, and a strong euro, which overnight briefly touched a 31-month high of $1.2088.

Euroland’s jobless rate fell to a 4-month low of 8.4% in October. Such spiked to 8.7% in July and remains 1.2 percentage points above the 2020 low of 7.2% in both February and April.

German retail sales volume posted the largest monthly increase in 2-1/2 years, a gain of 2.6% in October, and was 8.2% greater than its year-earlier level. Manufacturing PMI results reported yesterday highlighted a very wide gap between conditions in Germany and those in the other euro area members.

British shop prices fell 1.8% on year in October, their largest 12-month drop since April.

Led by personal consumption, Australian real GDP jumped 3.3% in 3Q, the biggest quarterly advance in 44 years, but the gain followed a 7.0% plunge in 2Q and left GDP 3.8% lower than a year earlier.

Japanese consumer confidence has plateaued at a very weak level. Although November’s reading (33.7) was a 9-month high, such was close to October’s score of 33.6 and September’s 32.7 level.

Swiss CPI inflation has been in subzero territory for ten straight months, including -0.7% in November. The greatest deflation (-1.3%) was seen in May-June. Consumer prices dipped 0.2% on month in November after three consecutive months with no change.

The number of unemployed workers in Spain went up 25.3k in November after a 49.6k advance in the prior month.

South Korean consumer prices slid 0.1% on month in November but rose 0.6% on year.

New Zealand’s terms of trade (the ratio of export to import prices) unexpectedly slumped 4.7% in the third quarter. That was the third quarterly drop in a row.

Compared to the same month a year earlier, October industrial production ticked up 0.3% in Brazil and 0.1% in Portugal.

After spiking 10.5% in the second quarter, Canadian labor productivity dropped 10.3% last quarter and recorded an on-year increase of 4.0%. Unit labor costs fell 1.5% from 2Q but were 4.3% above the year-earlier level.

ADP’s November 307k estimate of U.S. private-sector employment growth was considerably fewer than forecast, the smallest number in four months, and down 25% from October’s figure. Investors now await the New York regional purchasing managers survey known as the NAPM index. Beyond that, attention will turn to the Federal Reserve. Many Fed officials are speaking publicly today including Chairman Powell, and the Beige Book of U.S. regional economic conditions will be published at 14:00 EST (19:00 GMT).

In other central banking news, a Bank of Japan Board member said officials are prepared to extend out further its Covid relief measures. Year-on-year growth in Japan’s monetary base accelerated to 16.5% in November from 11.9% in 3Q, 4.1% in 2Q and 3.1% in the first quarter. At end-November, the BOJ’s balance sheet was 21.9% bigger than a year earlier. Meanwhile, Reserve Bank of Australia Governor Lowe warned that the economic recovery is apt to be bumpy with continuing high unemployment. The National Bank of Poland is reviewing its monetary policy today.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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