Daily Market Pulse

There is a U.S fiscal stimulus looming

5 minute read


The US dollar index fall continued on Wednesday as it reached the lowest level since April 2018. The brighter outlook with a Covid-19 vaccine widely available has eliminated some risks in the market, suggesting the world will likely go back to normal in early 2021, subsequently, there will be no more restriction measures damaging the global economy. Meanwhile, regarding the U.S fiscal stimulus talks, Senate Republicans and Democrats are still some way apart on an additional stimulus, the former preferring a package of just under $500Bn and the latter a package of around $1.3T. On the macro data front, the ADP National Employment data missed expectations, showing the U.S economy added 307,000 jobs in November, way below the market’s consensus (410,000). Today, the weekly jobless claims report will be awaited.


The EUR managed to keep firm against the USD on Wednesday, with the common currency jumping as much as 0.37% amid a pile of news. The possibility of U.S. fiscal stimulus measures and the first approval of a Covid-19 vaccine by the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) increased investors’ risk appetites. The news helped to give the euro a boost, despite expectations of the new deadlock surrounding the post-Brexit UK/EU trade negotiations. Turning to data, German retail sales rebounded (+2.6%) more than expected in October, suggesting consumers supported overall growth in Europe's largest economy before a partial lockdown to contain a second wave of the Covid-19 pandemic.


The pound lost some ground on Wednesday, closing down 0.39% against the USD. Optimism prevailed in the market after Britain beat the rest of the western world in approving a German-U.S. Covid-19 vaccine and promising that the first shots will be delivered in the next few weeks. However, this upbeat mood was doused in cold water as France warned it could veto a trade deal between the U.K. and the European Union if it doesn’t like the fishing rights terms, piling pressure on the EU negotiating team not to make further concessions. As a result, the implied volatility in the pair GBP/USD picked up substantially, with the 1-week tenor now trading at its highest in just over a month.


The JPY inched down 0.10% against the greenback on Wednesday in a quiet trading session for the pair. The USD/JPY pair moved toward a technical correction after the DXY’s fall the day before. Today, traders will digest Japan’s services Purchasing Managers' Index (PMI) which came in at 47.8 in November, little changed from October’s figure of 47.7. The PMI reading showed a sharper fall in new business, evidencing that demand remains fragile amid short-term uncertainty surrounding the length of the pandemic. Meanwhile, market participants will closely watch the U.S relief package develop over the day.


The Canadian dollar surged 0.11% against the USD on Wednesday. The Loonie remains firm thanks to rising oil prices, bearish USD flows and recent positive economic data. Household consumption and business capital formation soared a whopping 62.8% and 82.4% respectively, reported the official agency. Today, the Loonie should receive further support from the OPEC+ meeting. Recent reports said that the cartel is making headway in its negotiations on oil-output cuts, raising the odds that today’s meeting can restore a deal after failed talks on Tuesday.  


The MXN recorded positive gains (0.29%) against the USD for the second trading session in a row on Wednesday. The currency is still pricing in positive developments on Covid-19 vaccines after Britain approved the Pfizer-BioNTech vaccine and the U.S. looks to be the next in line. The prospect of vaccination on the horizon and an eventual return to economic normality point to steady gains for risk-driven assets, especially in emerging markets, such as Mexico. Investors await the reports from OPEC+ today’s meeting. 


The CNY ended up 0.13% against the USD on Wednesday after China released November’s Caixin services PMI which beat expectations by coming in at 57.8. In line with the Industrial data published at the beginning of the week, activity in China's service sector increased at a substantial pace in November. Moreover, what draws the market’s attention is the fact that total new business expanded at the quickest rate since April 2010, while business confidence improved to the highest for over nine-and-a-half years. Rising activity and sales underpinned the fastest increase in employment for just over a decade. Today, traders and investors will digest a report that says that President-Elect Joe Biden would not immediately remove the higher tariffs placed on Chinese products.


The BRL closed 0.22% lower against the USD on Wednesday, after touching its highest level in four months the day before. In line with the manufacturing PMI index released previously, industrial output rose up 1.1% in October for the sixth month in a row, official IBGE data reported. The overall picture is that, so far in q4, the country’s economy has been recovering at a fast pace. Nonetheless, the most pressing risk to the outlook now is that there is modest inflation looming. The Consumer Price Index (CPI - Fipe), which measures inflation in the city of São Paulo, increased 1.03% in November compared to October and leaves accumulated 2020 inflation at 4.79% (above Central Bank’s central target and tolerance margin of 1.5%). For today, the market’s attention will be focused on Services PMI.


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