At the end of last week, (US equity) markets took a more balanced approach after the positive headlines on a corona vaccine. Uncertainty on the current rise of new infections to some extent counterbalanced optimism. Today, the new corona wave also perturbed EMU PMI confidence data for November. The EMU composite PMI declined from 50 to 45.1 (45.6 expected). Understandably, the new lockdowns hit the services industry hard (41.3 from 46.9). The manufacturing sector was much more resilient (53.6), owing to an ongoing strong performance of the (German) export sector. However, in the current juncture, markets even asses the timely PMI’s a bit outdated. Preparations for the concrete roll-out of one/more vaccine(s), probably already in the near future, is helping markets to look through current batch of bad news. Today, AstraZeneca was the next in line to report good news on its Covid-19 vaccine. Even in the Markit PMI survey, companies both in manufacturing and the services sector turned further positive on the outlook 12 months ahead. So, the reflation trade resumed, albeit at a guarded pace. European equites are gaining slightly less than 0.50%. US equities outperform Europe after a sluggish close Friday (gain of about 1%). The oil price remains a prominent barometer of post-corona hopes. Brent crude oil is trading north of $45 p/b and is nearing the post corona top, touched end August. After a gradual but protracted rebound last week, core bonds started on the back foot from the open in Europe. The ‘poor’ EMU PMI provided a pause, but no intraday turnaround. The US yield curve bear steepens with yields rising between 0.6 bp (2-y) and 3.5 bp (30-y). German yields are little changed at the short end of the curve, but 10’s and 30’s are rising 1-2 bps. Intra-EMU spreads versus Germany mostly stabilize near recent low levels. Greece outperform with the 10-y spread declining 3bp.
Sentiment on the dollar didn’t change at the start of the new week. The US currency continues to fight an uphill battle. The TW dollar (DXY) is drifting below the 92.13 correction low, the last line of defense before the 91.75 year low. EUR/USD is challenging the 1.19 big figure, but a clean break of 1.1920 didn’t occur yet. Among the smaller currencies, the Turkish lira didn’t profit from the mild global risk-on. The lira fell prey to profit taking as last week’s CBTR rate increase is discounted and as markets still ponder the steadfastness of the U-turn toward a more orthodox policy. EUR/TRY trades again in the 9.40 area (low last week near 8.89). In Central Europe, the forint slightly underperforms (EUR/HUF 360+). Sterling has a good run for the start of the new week. Markets still hope for a Brexit deal as press headlines suggest that a ‘final’ call between EU Commission president Von der Leyen and UK PM Johnson is scheduled for this week. The UK November PMI’s also mirrored the impact of new lockdown measures on the services sector (45.8 from 52.1), but the overall figure and an unexpected rise in the manufacturing sector (55.2) suggest that the Q4 downturn might be more modest than feared. EUR/GBP dropped below the 0.89 barrier, but the 0.8865 support for now is left intact.
US November PMI went through the roof. The composite measure rose from 56.3 to 57.9, the highest level in almost 5 years. Both manufacturing and services recorded similar multiyear highs, respectively at 56.7 and 57.7. Apart from the pick-up in growth momentum, details also revealed a record rise in employment and an unprecedented increase in prices, in part linked to a record incidence of supply chain delays. IHS Markit, who conducts the survey, notes that firms are scrambling for inputs and workers to meet the recent growth of demand, and to meet rising future workloads. “Expectations about the year ahead have surged to the most optimistic for over six years, reflecting the combination of a post-election lift to confidence and encouraging news that vaccines may allow a return to more normal business conditions in the not too distant future.”