Daily Market Pulse

Further push in the U.S Congress to pass additional relief package

5 minute read


The DXY which tracks the greenback against a basket of peers fell 0.61% while U.S stock markets registered gains around 1.5% on Tuesday. Market sentiment has been driven by positive U.S data, signs that the first Covid-19 vaccinations could be administered by the end of the year, as well as further push in the U.S Congress, to pass an additional relief package. According to CNN reports, the first U.S. shipments of BioNTech and Pfizer’s coronavirus vaccine will be delivered on Dec. 15. Regarding economic data, the IHS Manufacturing Index jumped to 56.7 in November from 53.4 in October, illustrating that the industrial sector recovery kicked up a gear in November, with production growth accelerating to the highest for over six years. Later today, investors will focus on the November ADP jobs report (+0.43 million jobs expected, as well as on the economic report “Beige Book”.


Tuesday’s move in the pair EUR/USD came largely as a result of reports saying that British and EU negotiators are racing to strike a post-Brexit trade deal on Friday or over the weekend. A weaker dollar, fueled by the more positive risk tone, also provided support to the common currency which surged 1.20%, reaching its highest level since May 2018. Although overshadowed by Brexit rumors, traders also assessed official data showing that the eurozone's CPI slipped 0.3% a year in November (vs. -0.2% expected), while the German jobless rate fell to 6.1% in November (vs. 6.3% expected) from 6.2% in October. Later today, German retail sales for October will be released.


Once again Brexit headlines took the center stage, ensuring that the GBP ended 0.8% higher over the USD on Tuesday. According to The Times, talks between EU chief negotiator Michel Barnier and Chief U.K. Negotiator David Frost has now entered the ‘tunnel’ phase - an intensive period of behind-closed-doors talks aimed at thrashing out the final parts of an agreement. The aim, according to the same report, is for negotiations to achieve a deal by the end of this week. Furthermore, European Commission President Ursula von der Leyen said it is very clear that the European Union wants an agreement with the U.K, despite difficult negotiations. Although left aside, Tuesday’s Manufacturing PMI reported that the U.K. manufacturing economy strengthened during November. The index rose to a 35-month high of 55.6 in November, up from 53.7 in October, signaling expansion for six successive months. Today the pound is set to continue to be driven by headlines and reports from the post-Brexit trade negotiations. 


The pair USD/JPY showed little progress on Tuesday, ending the day almost unchanged (+0.03%). The Japanese yen net long positions bounced back almost to their early November high which was the strongest level since 2016, analysts said. As the Covid-19 pandemic continues to raise investor’s concerns over the global economic recovery, the JPY will continue to act as a safe haven. Turning to data, the au Jibun Bank Manufacturing PMI rose slightly from 48.7 in October to 49.0 in November. This reading was the highest since August 2019, and signaled just a marginal deterioration in overall conditions, as the industrial sector continued to take tentative steps towards more stable operating conditions. The country will release today, November Monetary Base and the Consumer Confidence Index for the same month.


The Canadian dollar managed to close 0.52% higher against the greenback on Tuesday after official data showed that Canada’s third-quarter annualized GDP bounced 40.5% a quarter, albeit way below 47.5% previously expected. Yesterday, foreign exchange market traders also had a chance to evaluate the final Manufacturing PMI Canada, which showed encouraging signs as the Canadian manufacturing sector continues to recover from the second quarter downturn. New orders, output and employment all continued to expand in November. Elsewhere, market participants remain cautious, eyeing developments in the energy markets as WTI oil crude recently slipped below the bottom of its recent $44.50-$45.50 range of the last few days, as the crude complex awaits the outcome of the ongoing OPEC+ discussions tomorrow.


The Mexican peso was able to react positively to the latest industrial PMI data, albeit the index showed the recovery of Mexico’s factories still at a slow pace. The MXN rose 0.73% against the USD on Tuesday. The background remains favorable to the currency, with increased carry interest, higher oil prices, as well as optimism over the near-term prospect that U.S-Mexico trade relations will improve. However, fragile domestic economic and political dynamics should cap gains.


The CNY rose 0.08% against a weaker USD on Tuesday, after markets once again hailed the fact that a business survey showed that activity in China's factory sector accelerated at the fastest pace in a decade during November. That aside, there were positive headlines regarding Covid-19 vaccines. The USD weakness is due to cautious optimism that the U.S will restart stimulus talks, which improves risk appetite and subsequently benefits the Chinese Yuan. Investors await the Caixin services PMI, due on Thursday.


The BRL jumped as much as 2.36% against the USD and led gains across Latin America on Tuesday. The Brazilian real’s leap is due to positive Chinese data showing a solid recovery and progress on Covid-19 vaccines, which drove buying into risk-driven assets. Moreover, the strengthening of the BRL can be attributed to a sustained recovery in Latin American’s largest economy after Manufacturing PMI showed that the manufacturing sector performed strongly in November, with producers lifting output sharply in response to sustained sales growth. The index came in 64.0 (vs. 66.7 in October), remaining comfortably in expansion territory. For today, the market’s attention will be focused on inflation data.


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