Some Important Developments this Christmas Eve

December 24, 2020

Many markets were either shut all day or closed early. Nevertheless, investors are digesting some significant developments:

  • The Central Bank of Turkey hiked its one-week repo rate by a greater-than-expected two percentage points to 17%. The rate was 12% at the start of 2020 and 8.25% in June-August.
  • EU/British trade negotiators reached a tentative accord, which subsequently ran into further trouble over fishing rights. Before the snag, Prime Minister Johnson was set to reveal the elements of the deal later today. It’s now unclear if that happens.
  • Uncertainty also envelops U.S. pandemic relief talks after President Trump’s threat to veto the bill. He separately vetoed a $740 billion defense bill yesterday and continues to pardon many political allies.
  • Covid cases, hospitalizations, and deaths remain very elevated both globally and in the United States, where over 225k new cases and 3.4k deaths were reported in the past day.
  • U.S. economic sanctions on Russia are being tightened.

At 90.27, the DXY trade-weighted dollar index is just marginally above its recent 2.5-year low. The dollar overnight fell by 0.9% versus the Turkish lira, 0.7% against pound sterling, 0.3% versus the Australian dollar, 0.2% vis-a-vis the Mexican peso and Chinese yuan, and 0.1% relative to the euro and New Zealand dollar. The U.S. currency alternatively edged 0.1% higher against the yen and Swiss franc.

In selected stock markets that traded this Christmas Eve, share prices advanced 0.8% in Turkey, 0.5% in Japan, 1.7% in South Korea, 1.1% in India and 0.1% in the U.K. but fell 0.6% in China. U.S. stock futures show a tiny 0.1-0.2% increase.

The ten-year British gilt yield slipped three basis points. Fixed income markets will close early today at 13:00 EST in the United States and Canada.

The price of West Texas Intermediate crude oil slumped 1.1% today following yesterday’s revelation that U.S. inventories dropped less than forecast in the week of December 18.

Dutch GDP growth last quarter was revised up 0.1 percentage point to 7.8% but remained 2.5% below its year earlier level. The EUR 16.97 billion Dutch current account surplus in 3Q 2020 was 20.2% smaller than in the same quarter of 2019.

Corporate service prices in Japan edged up 0.1% on month in November but posted their largest on-year decline (0.6%) in 97 months.

Factory output in Singapore leaped 7.2% on month and 17.9% on year in November.

Taiwan’s 3.77% jobless rate last month matched October’s 7-month low.

Mexico’s 4.4% unemployment in November was its lowest since May but above the year-earlier level of 3.3%. Mexico had a trade surplus for a sixth straight month in November, but the $3.032 billion size was the smallest in that streak.

2020 was a very active year for Turkish monetary policy. Five repo rate reductions in January-May totaled 375 basis points but were followed by sharp hikes of 200 basis points in both September and today, flanked around a huge 475-basis point increase in November. The rate benchmark is ending the year at 17% compared to 12% at the beginning, and the reason for this sharp reversal is an upturn in actual and expected inflation, fueled by lira depreciation, increasing international food and other commodity prices and deterioration in inflation expectations, according to the Central Bank of Turkey‘s released statement today. Policymakers promise “tightness of monetary policy stance will be decisively sustained until strong indicators point to a permanent fall in inflation in line with the targets and to price stability.” The CPI inflation target is 5% +/-2 percentage points. From 8.55% in October 2019, the 12-month rate of increase in consumer prices rose to 11.75% by this past September and accelerated further to a 15-month high of 14.03% last month. Producer price inflation has climbed from 5.53% this past May to 23.11% six months later.

Canadian building permits had been projected to reverse only a small fraction of October’s steep 14.6% plunge but instead jumped 12.9% last month.

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

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