Today’s podcast

https://soundcloud.com/user-291029717/trumps-last-day-how-much-will-biden-undo?in=user-291029717/sets/the-morning-call

Overview: Sweet dreams (are made of this)

“Sweet dreams are made of this; Who am I to disagree; I travel the world and the seven seas; Everybody’s looking for something” Eurythmics 1983

As song titles go, Sweet Dreams by the Eurythmics probably sums up overnight price action the best. It was a night of limited market moves given the Martin Luther King Jr Public Holiday, along with key risk events being later in the week (BoC Wednesday, ECB and BoJ on Thursday, and PMIs on Friday). European equities managed to close in the green with the EuroStoxx50 +0.1% and DAX +0.4%. Yields were mostly higher with 10yr German Bund yield +1.4bps to -0.53%. FX saw commodity currencies underperform (AUD -0.3%, NZD -0.3%, USD/CAD +0.2%) despite the Chinese GDP beat, with a slight risk-off tone following Sunday’s reports of Trump notifying Huawei’s suppliers that it was revoking their licences to work with the company (USD/Yen -0.2%). On net though the USD (DXY) is little changed.

Chinese GDP figures

Chinese GDP figures yesterday surprised to the upside with growth of 6.5% y/y v 6.2% expected. Total calendar year 2020 growth was 2.3%, making China one of the few major economies to have a v-shaped recovery. The details though were more mixed, particularly on the monthly activity data with some softness emerging in retail sales (4.6% y/y v. 5.5% expected) and more recently in fixed asset investment (2.9% y/y v. 3.2% expected), while industrial production continues to drive growth (7.3% y/y v 6.9% expected). In contrast, Japanese industrial production in November fell 3.9% y/y, highlighting China’s outperformance.

The USD

The USD is also under focus with former Fed Chair Yellen said to affirm the US’ commitment to market-determined exchange rates in her testimony on Tuesday. The approach will be in sharp contrast to the Trump Administration which has attempted to talk down the USD for some time. The WSJ reports: “ Ms. Yellen also doesn’t find it useful to regularly comment on the value of the dollar, and she wants to make clear that the U.S. Treasury, under her leadership, wouldn’t seek to weaken its value, according to the officials. Under the incoming administration, no other cabinet official or White House staff will talk about the dollar, the officials said.” (see WSJ for details ). There have been a few reports highlighting that the USD may see a short-term correction higher. CFTC data shows speculative bets against the USD have built up to their highest level in nearly three years, signalling the vulnerability to a short-term correction higher in the USD. Such a move would likely be only a temporary with structural factors such as the budget deficit and aggressive Fed QE still likely to put downward pressure on the USD.

Coming up today

Domestically we have Weekly Consumer Confidence along with Weekly ABS Payrolls. Neither should be particularly market moving. Offshore it is very quiet with only the German ZEW, Earnings reports (BofA, Goldmans, Netflix) and in the US former Fed Chair Yellen’s confirmation hearing for Treasury Secretary in Biden’s Administration of note. Details below:

• NZ: Card spending: no consensus available
• AU: Consumer Confidence: the usual weekly consumer confidence figure may gain more prominence to see whether it bounces following the recent easing of virus restrictions after the recent outbreak has come under control.
• AU: Payrolls – Week to Jan 2: may provide some insight into whether the virus outbreak in mid-December impacted the labour market, though the read is likely to be noisy given the holiday season. The split between large and small employers will also continue to be of interest given the continued tapering of JobKeeper. According to this data, the jobs recovery has been driven by large firms (>200 employees) with large firm payrolls just -0.3% below pre-pandemic levels compared to small firms (<20 employees) at -3.7% below pre-COVID levels.
• GE: ZEW: consensus sees an improvement in the expectations component to 59.4 from 55.0, but the current situation  component is expected to fall further to -68.3
• UK: BoE’s Haldane: Chief economist Haldane is speaking in conversation with Lord Alan Rushbridger, no text to be released. Markets will be watchful for any comments on negative rates given fellow MPC member Tenreyro’s recent comments on negative rates (recall she said “Monetary policy transmission has worked effectively under negative rates in other countries, with some of the evidence pointing to more powerful effects”).
• Earnings: BofA, Goldman’s, Netflix all reporting earnings.

Market Prices

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