Another day, another US IPO with 100% gains. Following DoorDash on Wednesday, yesterday it was AirBnB’s turn, its shares doubling on the day, and finishing with a market cap of over USD100 billion. If nothing else, it highlights how keen retail investors are to grab a slice of the 2021 vaccine-led recovery action at any price. At least AirBnB has a quarter of profits to justify the valuation, although looking at how full my domestic flights were to and from Bali last week, I do not doubt that the pent tourism demand out there is exponential.
Bitcoin, which readers will know is so beloved by me, is looking as staid as a Christmas party in Zurich on a Sunday night, compared to the US IPO market. I am seriously contemplating changing my name to TheVoiceOfReason.com and listing myself. I think I’m worth a billion, although suggesting to Mrs Halley this morning that I am priceless, was met with peels of laughter.
Back in the real world, a strange and foreign place, little understood by financial markets in 2021, things weren’t quite so rosy. Germany’s ZEW outlook outperformed as the Germans performed their own, more sedate version of the vaccine recovery beloved by the FOMO gnomes of Wall Street. The European Central Bank left rates unchanged at -0.50%, but increased bond buying targets via their pandemic emergency programmes and announced more TLTRO’s for 2021; precisely what the market had predicted.
Chairperson Lagarde was suitably cautious on the economic outlook, with Covid-19’s second wave in Europe threatening the near term recovery and requiring immediate action by the ECB, even if the medium/long-term outlook looked rosier. Ms Lagarde made passing reference to the euro, but its gains versus the US dollar are not reflected on a trade-weighted basis. Euro shrugged on the ECB, finishing the day 0.46% higher versus the greenback, which had a tough day at the office.
Nerves were fraying in the real world as well in the United States. With Senate Republicans digging their heels in over state aid in any proposed fiscal stimulus package, zero progress was made overnight. Initial Jobless Claims also spiked to 853,000 for the week, a worrying acceleration of the deterioration in jobless claims’ trajectory over the past month. Although Manufacturing Jobs held up nicely, government jobs post the census and election fell, as did services. With no stimulus progress to offset the end of government programmes on December 31st, and Covid-19 undermining employment, markets were spooked, with US equities easing except for the tech-heavy Nasdaq, and US yields falling across the curve.
Currency markets clearly believe a deal will be done and regard the vaccine-led 2021 recovery as the bigger story. Even as domestic US markets turned defensive, the US dollar fell overnight with cyclical currencies notable outperformers. That sentiment was probably assisted by imminent FDA emergency approval of the Pfizer/BionTech Covid-19 vaccine in the US, possibly as soon as today.
Brexit, the reality TV show that has gone on a few seasons too long, has the potential to cause fireworks today and on Monday especially. Instead of saying yes to the dress, Britain and the European Union seem intent on saying yes to the mess. Neither side seems willing to cross the spread to get a trade deal done, with posturing on both sides. Sterling remained under pressure overnight, GBP/USD easing 0.80% to 1.3280.
Sunday is the deadline for negotiations, and although deadlines have come and gone previously, this one looks to be the absolute last throw of the dice. With financial markets having bought sterling for months on the assumption a Brexit trade deal would be completed, the risk is that may have been a false hope. I sense that the market is still clinging to that conviction and has not yet materially thrown in the towel. That could well change on Sunday, meaning that Monday morning in Wellington, New Zealand, when currency markets open in the wee hours, could be emotional. My expectation on a negative outcome is that GBP/USD will start trading in New Zealand on a 1.20 handle.
The US has been busy on the geopolitical front as well. It has announced sanctions on NATO partner Turkey, over its procurement of a Russian air defence system. Additionally, the US Federal Communications Commission ordered the removal of Huawei equipment from telecommunications carriers in the US and is reviewing China Telecom(Americas) Corp’s permission to operate in the United States. On Thursday, China halted visa-free access to Hong Kong and Macau for US diplomatic passport holders. The fallout is mostly being seen in China stock markets today and won’t be enough to derail the global recovery trade momentum. Nevertheless, with President Trump as busy as ever on the sanctions front, US-China relations will be colder than a vaccine storage fridge when President-elect Biden takes office.
The data calendar is second-tier in Asia today, but picks up the pace notably next week, with heavyweight China data and a plethora of regional central bank meetings. Asian markets appear to be content to continue the weaker US dollar theme, with equity markets having a position adjustment look about them as the week draws to a close.
