ECB Crunch Time: The Week Ahead 7th – 11th December 2020

Today’s Market Outlook 

ASIA 

Asia-Pacific markets traded mixed on Monday, with shares in Japan, Hong Kong and the Chinese mainland struggling for gains following a report that the U.S. is preparing to slap sanctions on a dozen more Chinese officials, ratcheting up tensions with Beijing. 

Investor sentiment improved last week around coronavirus vaccine rollouts and U.S. stimulus hopes, which fuelled a record-setting session Friday on Wall Street. 

Australia’s benchmark ASX 200 rose 0.62% to 6,675 as the heavily weighted financials subindex advanced 0.28%. Energy and mining stocks mostly rose — shares of Rio Tinto rose 2.46%, Woodside Petroleum was up 0.65%, Fortescue was up 3.78% and BHP added 2.14%. 

In Japan, the Nikkei 225 was down 0.61% while the Topix index fell 0.79%. South Korea’s Kospi index retraced earlier losses to trade up 0.15%. 

Chinese mainland shares fell: The Shanghai composite was down 0.59% while the Shenzhen composite and the Shenzhen component traded near flat. 

In Hong Kong, the Hang Seng index fell 1.47%. Major indexes in India, Indonesia, Malaysia and Philippines traded up. 

U.S.

Wall Street closed out a solid week for stocks Friday with more record highs as traders took a discouraging jobs report as a sign that Congress will finally move to deliver more aid for the pandemic-stricken economy. 

The S&P 500 rose 0.9% to 3,699.12, notching its third all-time high this week. The Dow Jones Industrial Average jumped 0.8%, to 30,218.26, also a record. The Nasdaq picked up 0.7%, to a record 12,464.23. 

Hopes remain deeply rooted on Wall Street that one or more coronavirus vaccines will help rescue the global economy next year. China, Indonesia, Britain and the U.S. all are gearing up to begin mass vaccinations soon. But efforts to contain a surge in new virus cases have stoked worries about more economic pain for companies and consumers. 

Democrats and Republicans have been making on-and-off progress on talks for another round of support for the U.S. economy, including aid for laid-off workers and industries hit hard by the pandemic. 

A proposed COVID-19 relief bill is expected to get backing from President Donald Trump and Senate Majority Leader Mitch McConnell but it won’t include $1,200 in direct payments to most Americans, said Sen. Bill Cassidy, a Republican from Louisiana who is involved in the bipartisan talks. 

The hope in markets is that financial support from Washington could help carry the economy through a dark winter. Surging coronavirus counts, hospitalizations and deaths are pushing governments around the world to bring back varying degrees of restrictions on businesses. They’re also scaring consumers away from stores, restaurants and other normal economic activity. 

In other trading: U.S. benchmark crude oil lost 28 cents to $45.98 per barrel in electronic trading on the New York Mercantile Exchange. It gained 62 cents to $46.26 per barrel on Friday. Brent crude, the international standard, declined 23 cents to $49.02 per barrel. 

The U.S. dollar inched to 104.14 Japanese yen from 104.16 yen on Friday. The euro slipped to $1.2118 from $1.2120. 

EUROPE 

The European Central Bank meeting is the highlight of The Week Ahead.   

After months of raising expectations for more stimulus to shore up a coronavirus-hit economy, it’s time for the European Central Bank to deliver — any package at Thursday’s meeting that doesn’t pack a punch is likely to be met with disappointment. 

Traditionally officials have been wary of pre-committing to a policy change, but this time, they seem to all but promised to move.  And for a good reason.  The recovery has stalled, and a contraction here in Q4 is possible. The pandemic and social restrictions hitting the economy even if less than earlier this year.   

The peak of the second Covid-19 wave has, according to data trends, now passed and infection rates are now declining in major European countries; hospital and ICU occupancy has peaked, and positive test rates peaked a few weeks ago. These trends suggest the death rate in the second wave is likely to start declining shortly. France has relaxed some of its lockdown-lite restrictions and the street, particularly oil traders, will see how far activity and mobility levels recover. Other countries are also showing a slight increase in mobility over the past week. It will be interesting to see if this trend continues or activity remains near the low levels caused by the second lockdown. 

Its Brexit crunch time as European negotiators were in the UK last week trying to get a deal done in time for Europe to ratify it before the end of the year. The noise around various Brexit headlines continues, creating choppiness but little ultimate change in GBP. With both sides briefing the media, the tone of the headlines is in constant flux. 

Noise is good, however, as it means that the two sides are finally getting to the very heart of the issues, and in the event of a deal it’s easier to claim victory after a proper fight. 

Both sides were briefing that a deal was possible on the weekend; this has now been pushed to Monday/Tuesday. The UK is planning to launch a Finance Bill next week, which is a complication as it will likely clash with EU views. The EU Summit on December 10/11 could be decisive; if there’s nothing then, this could get dragged out further. The European Parliament has scheduled special sessions on December 23 and December 28, which would be the last moment for a deal. 

Overview for the Week Ahead 

Along with the ECB and the BOE meetings this week, the economic data to watch are primarily Germany’s ZEW and China and US inflation data.   

The Bank of Canada also meets this week.  Canada is also dealing with lockdowns and restrictions due to the coronavirus.  The BOC already has set interest rates at 0.25%.  The BOC is not expected to cut rates or increase its bond purchase program, especially with stronger than expected employment data on Friday.  However, the Canadian Dollar is at its strongest level vs the US Dollar since October 2018, near 1.2780. Watch for the BOC to try and talk down the Canadian Dollar. 

There is company news out later this week as well, as AirBNB and Doordash have their long-awaited IPOs.  In addition, Adobe, Oracle, Costco and Broadcom report earnings.  Also, Ocado, Rolls Royce and Bellway will provide trading updates. 

All these events and more have the potential to influence the markets which means there is plenty of trading opportunities. 

Today’s High Impact Events

The times below are GMT+2. 

Monday 7th December 

  • 17.00 – Canada Ivey PMI 

Potential instruments to Trade: CAD Crosses.  

Tuesday 8th December 

  • There are no high impact events today but there are low impact events from Europe and China. 

Wednesday 9th December  

  • 17.00 – Canada BOC Rate Statement & Overnight Rate 

Potential instruments to Trade: CAD Crosses.  

Thursday 10th December 

  • 14.45 – ECB Main Refinancing Rate & Monetary Policy Statment 

Potential instruments to Trade: EUR Crosses.  

  • 15.30 – ECB Press Conference 

Potential instruments to Trade: EUR Crosses.  

  • 15.30 – U.S. CPI m/m, Core CPI m/m & Unemployment Claims 

Potential instruments to Trade: USD Crosses & Gold.  

  • Airbnb IPO – Airbnb will begin trading on the Nasdaq under the ticker ABNB 

Friday 11th December 

  • 15.30 – U.S. Core PPI m/m & PPI m/m 

Potential instruments to Trade: USD Crosses.  

  • Deadline for U.S. Congress to Pass a Funding Bill to Avert Government Shutdown 

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