Markets start the week positively in Asia as coronavirus vaccine hopes counter higher case numbers
While Wall Street ended last week on a softer note, investors appear to have returned from the weekend break in a slightly more positive mood, with US equity futures up about 0.4% as we write (US cash Treasuries did not trade in Asia due to the Tokyo holiday). That positivity probably reflected a suggestion by the US official in charge of ‘Operation Warp Speed’ that the first Covid-19 vaccinations in the US could begin in less than three weeks. This comes after the US registered a new record of over 195,000 new coronavirus cases on Friday along with its highest number of Covid-19 patients in hospital. Meanwhile, this morning in the UK, AstraZeneca announced that its Covid-19 vaccine developed with the University of Oxford had an initial average success rate of 70%, some way below that of the Pfizer and Moderna jabs. However, efficacy appeared to rise to 90% when an initial half-dose was followed by a full dose at least one month after. And the vaccine can be stored in normal fridge conditions.
Turning to Asia, Japanese markets were closed for a national holiday. Unfortunately, over the weekend Japan continued to set new record highs for new coronavirus cases – topping 2,500 on Sunday – leading PM Suga to suspend some of the programme of travel and dining subsidies that may have contributed to the spread of the virus. Markets elsewhere in the region have generally posted decent gains, however. This was especially so in South Korea, where the Kospi increased 1.9% to a record high after early export data for the first 20 days of November reported growth of 11.1%Y/Y – a steep uplift from last month’s 5.8%Y/Y decline and probably indicative of strengthening demand conditions in China. Indeed, China’s CSI300 increased a robust 1.3% to a five-year high, showing little reaction to a Reuters’ headline suggesting that the US had identified 89 Chinese companies with links to the Chinese military (these companies would be barred from buying some technology goods from US companies) or news of new coronavirus in Tianjin, Shanghai and Inner Mongolia. However, stocks are little changed in Hong Kong after a planned travel bubble with Singapore was deferred two weeks due to rising coronavirus cases in the former.
Survey data dominates this week’s euro area diary
This week’s euro area data flow is largely about the main November surveys, which seem bound to point to a reversal in growth in response to the resurgence in the pandemic and associated re-imposition of restrictions on activity. The flash PMIs, due shortly, will set the scene, and these are expected to show further declines in the headline euro area services and manufacturing indices, with the former set to drop from 46.9 in October to a six-month low, perhaps close to 42.0. And so, the euro area composite PMI is highly likely to slip firmly below 50 for the first time in five months (the median forecast on the BBG survey is 45.6). Given the more severe pandemic situation, France’s flash PMIs seem bound to be significantly weaker than those of Germany.
Among other confidence indicators, the more comprehensive sentiment survey results from the European Commission (Friday), national business climate indices from Germany’s ifo Institute and France’s INSEE (both tomorrow), and German GfK consumer confidence survey (Thursday) are also due. Other data to be published this week include euro area bank lending figures for October (due on Thursday) and a first look at inflation in November, with preliminary French figures due out on Friday.
Brexit negotiations and survey data the focus in the UK this week
The main focus in the UK this week will be the negotiations between the EU and UK on the post-transition Brexit arrangements, which are approaching the endgame. Recent days brought media reports of optimism that a deal might be announced over coming days, which would allow sufficient time for ratification by the European Parliament before year-end – albeit perhaps just the week after Christmas. On Friday, the European Commission reportedly briefed EU ambassadors that 95% of a new EU-UK treaty on the future relationship had been agreed. However, further progress was still reportedly required on a range of issues related to energy, road haulage, aviation and rules of origin, as well as the long-standing obstacles of the level playing field, governance and fish – some of which might require transition arrangements and review clauses to secure a deal. Given the significant political sensitivities associated with the outstanding issues, we suspect that a final agreement will need to be brokered personally between Von Der Leyen and UK PM Johnson.
Data-wise, as in the euro area, the main focus will be today’s flash PMIs for November. Given the closure of many face-to-face services in England this month, the services PMI is likely to fall sharply from 51.4 in October to below 50 for the first time since June. While Brexit-related stock-building might provide some support, we also expect the manufacturing PMI to fall back from 53.7 in October, probably to a five-month low. The CBI distributive trade survey results, due tomorrow, will provide insight into retail and vehicle sales this month, and also seems bound to be very weak given the closure of non-essential stores and showrooms in England. Finally, today will see PM Johnson announce new looser coronavirus restrictions to apply over the Christmas holiday period. And Wednesday will bring an announcement from the Chancellor of his public spending plans for the coming fiscal year, while the OBR will publish updated economic and fiscal forecasts and the DMO will receive an updated Gilt remit.
A busy half-week in the US ahead of Thursday’s Thanksgiving holiday
The first half of this week crams in a large number of economic reports before US investors head away for Thursday’s Thanksgiving holiday. Today features the flash Markit PMI reports for November, although they continue to attract less attention than the long-established ISM surveys. Tomorrow, the Conference Board consumer survey for November will likely reveal a small drop in sentiment due to skyrocketing coronavirus cases and President Trump’s post-election shenanigans, although positive vaccine news and rising asset prices should provide some offset. The S&P/CoreLogic and FHFA house price indices for September are also released tomorrow, together with the Richmond Fed’s manufacturing survey for November.
An extraordinarily busy Wednesday includes the second reading on Q3 GDP, with the preliminary estimate of a 33.1%AR rebound in activity likely to be revised up fractionally to 33.5%AR. More importantly, the personal income and spending report for October will cast further light on how the economy has started the current quarter. We expect incomes to have declined 0.5%M/M, with healthy growth in labour incomes likely to be offset by lower government transfers. Even so, we expect personal spending to have increased 0.5%M/M, with a rebound in services spending buttressing a modest lift in retail sales. Meanwhile, the soft CPI result suggests that the core PCE deflator will be unchanged in the month, lowering annual inflation back to 1.4%Y/Y.
Wednesday will also see the release of advance durable goods orders and merchandise trade data for October, together with data on retail and wholesale sector inventories. As far as durable goods orders are concerned, a combination of a strong ISM reading and a solid gain in factory employment point to a further increase of about 0.7%M/M. With imports now fully-recovered from their pandemic-induced slump but exports still having significant scope to advance, we expect the goods trade deficit to narrow further to $78.0bn in October. Adding to the dataflow, the University of Michigan will release the final results of its consumer survey for November and new home sales will likely have recorded a further increase in October if last week’s record NAHB housing index is any guide. Given Thursday’s holiday, the weekly jobless claims report is also released on Wednesday, and will be of interest following last week’s unexpected lift in initial claims. Finally, this week’s US economic diary will conclude on Wednesday afternoon with the release of the minutes of this month’s FOMC meeting.
Japan closed today; Friday’s Tokyo CPI the highlight of a quiet week ahead
Japanese markets were closed today for the Labour Thanksgiving Day holiday. Once markets reopen tomorrow, a sparse local economic diary is unlikely to offer investors much distraction from the recent concerning increase in coronavirus case numbers. Nationwide department sales data for October will be released tomorrow, followed on Wednesday by the services PPI for October and the final results of the Monthly Labour Survey for September. On Friday the advance Tokyo CPI for November will complete the week’s data flow, with the BoJ’s preferred measure of core inflation (i.e. ex fresh food and energy) likely to remain close to last month’s soft -0.2%Y/Y.
A very quiet week ahead in China
Following last week’s data dump, this week’s Chinese diary is characterized by the usual lull late-month lull, with the only release of note being Friday’s industrial profit report for October.
Australia PMIs strengthen in November; trade and capex data ahead
The only economic data released in Australia today were the flash CBA PMIs for November. While the PMIs tend to play second fiddle to Australia’s longer-running business and consumer surveys, today’s news was nonetheless positive with the composite PMI output index rising 1.2pts to a 4-month high of 54.7. Moreover, the composite new orders index increased 0.6pts to 51.5; the composite employment index increased 3.0pts to an 18-month high of 51.3; and the composite output prices index increased 2.0pts to a 9-month high of 51.8. The largest improvement was in the manufacturing sector, where the headline PMI increased 1.9pts to 56.1 – the highest reading since December 2017 – with both the new orders and employment indices rising strongly. The headline services PMI increased 1.2pts to 54.9, with the most encouraging facet of the detail again being a 2.5pt increase in the employment index to 10-month high of 50.8.
Looking ahead, the economic diary is relatively light in Australia over the remainder of this week. Tomorrow will see the release of preliminary merchandise trade data for October, together with the ANZ-Roy Morgan weekly index of consumer confidence. In addition, RBA Deputy Governor Debelle will speak on ‘Monetary Policy in 2020’ in a webinar hosted by Australian Business Economists. On Wednesday, the countdown will continue to the release on 2 December of the National Accounts for Q3 with the release of information on construction activity. A day later the Q3 CAPEX survey will provide an indication of broader capex trends over the quarter and – perhaps more importantly – firms’ capex intentions over the coming year.
Kiwi retail sales rebound beats expectations
The focus in New Zealand today was on the official retail sales report for Q3 – the first major partial indicator released ahead of the National Accounts on 17 December. Encouragingly, after slumping almost 17%Q/Q in Q2 due to pandemic-induced store closures, the removal of restrictions saw the value of retail spending surge more than 28%Q/Q in Q3. Moreover, with prices little changed in the quarter, the volume of spending was also up 28%Q/Q – far above market expectations – and up 8.2%Y/Y. Spending on accommodation, food and beverages services and liquor all leapt by more than 60%Q/Q in volume terms. However, with foreign tourists still absent, only liquor sales were higher than a year earlier. Meanwhile, the volume of spending on electrical and electronic goods increased 23%Q/Q and was up over 27%Y/Y, while spending on hardware, building and garden supplies increased 40%Q/Q and almost 14%Y/Y – strength that owes in part to the extremely active housing market. While retail spending only makes up about 40% of total household expenditure, today’s upside surprise bodes well for a very strong recovery in household spending from the 12.1%Q/Q contraction in Q2 – one that may prove to have been stronger than envisaged by the RBNZ in its revised economic outlook earlier this month.
Looking ahead, the only economic data reports due over the remainder of this week are the October merchandise trade report on Thursday and the November ANZ consumer confidence report on Friday. Ahead of the data, the RBNZ will release the latest edition of its six-monthly Financial Stability Report, which will doubtless have plenty to say about the very buoyant housing market – in particular, the rapid growth in house prices.