ON DECK FOR MONDAY, NOVEMBER 23
KEY POINTS:
- Risk-on to start the week
- US, Australian PMIs move higher…
- …as Eurozone & UK PMIs point to double dip
- Is the wave 1 PMI playbook repeating?
- Global covid-19 in charts: US, Canada continue to see upswings…
- …against progress in Europe, Latin America…
- …and mixed trends across Asia-Pacific
- BoC to speak on financial stability
INTERNATIONAL
The week is off to a solid risk-on start despite poor macro data that merely confirms near-term downside risk to European economies. Stocks are continuing to look through to the post-lockdown vaccine-driven environment. Brexit headlines offer the same old same old (close, but far, still working….). I can’t think AstraZeneca’s vaccine really matters to markets at this point even notwithstanding mixed headlines on efficacy, after markets have already digested what appear to be stronger results from Moderna and Pfizer.
- The US S&P500 is bouncing within gains of ¼% to ½% so far this morning. The TSX is up ¼%. European cash markets are up by around ¼% except for London that is off by ¼%. Asia-Pacific markets rallied but Japan was shut for Labour Thanksgiving Day.
- US Ts are bear steepening with 10s and 30s up by 3bps. Canada’s curve is performing similarly. The gilts curve is shifting upward by 2bps across maturities. EGB 10s are mixed but generally little changed with mild cheapening on average.
- The USD had been depreciating earlier in the morning but is now down against most major crosses except CAD and the Mexican peso with oil up by a few dimes.
The eurozone composite PMI fell by almost five points to 45.1 to signal renewed contraction in the Eurozone economy. Services were particularly hard hit with a decline in that PMI of over five points to 41.3 while manufacturing dipped 1.2 points to 53.6 to stay in slower expansion. Thus far, the gentle downside to PMIs is a far cry from earlier in the year but is expected to moderately worsen and drag GDP growth down (chart 2).
Across the Eurozone, France’s nationwide lockdown resulted in a worse deceleration than in Germany. France’s composite PMI fell by 7.6 points to 39.9 to return to a pace of contraction similar to during May, while Germany’s fell by three points to 52 which indicates slower expansion.
The UK composite PMI fell by almost five points to 47.4 as services slipped into renewed recession (45.8, 51.5 prior) while manufacturing accelerated (55.2, prior 53.7). Chart 3 shows the rolling PMIs correlated with GDP growth.
Australia’s PMIs bounced back in November partly on reopening effects in Victoria. The composite PMI increased 1.2 points to 54.7 to signal faster GDP growth. The gain was split between the manufacturing and services PMIs. This may be a transitory gain as downside risk to global growth catch up to Australia. Chart 4 shows PMIs holding up better so far as a GDP indicator.
Global covid-19 cases continue to soar. The weekly update of case trends is provided in charts 5–27. US cases continue to climb across all regions and it doesn’t matter if we’re talking blue or red states. Within Europe, France’s lockdown had been driving cases sharply lower, but this has since reversed again as a caution against lockdown cure-alls. Other parts of Europe may be witnessing improving trends outside of Russia and Turkey, but it remains premature to assess. Aside from Brazil, multiple parts across Latin America are also seeing waning trends for new cases. Within Asia-Pacific markets the evidence is mixed as cases rise in Japan, South Korea, Indonesia and Malaysia while they fall in India and the Philippines and remain low in Australia.
UNITED STATES
The composite US Markit PMI increased by 1.6 points to 57.9. Being further above 50 that signals an accelerating expansion in GDP growth. The gain was driven by both services and manufacturing. As chart 1 shows, the US PMI supports Q4 GDP growth expectations. They are less widely watched than ISM and Markit’s PMIs always attract a much thinner and largely irrelevant consensus. ISM is a purer gauge of the US economy by considering only domestic operations so the Fed watches that one more closely.
Fed-speak will include Richmond’s Barkin (12:30pmET), San Fran’s Daly (1pmET) and Chicago’s Evans (3pmET).
CANADA
Bank of Canada Deputy Governor Gravelle gives a speech on the impact of covid-19 on financial stability (2pmET) which offers low market risk.
Provincial covid-19 case charts are also updated in the accompanying collection. Canadian cases remain trending around a record with no clear signs of topping anywhere. The so-called Atlantic bubble is being somewhat pierced as evidenced by climbing case counts in New Brunswick alongside only muted increases in Nova Scotia and Newfoundland & Labrador and essentially none in PEI. Also note that positive test rates continue to rise nationwide toward levels seen during wave 1, albeit with the usual caution that comparing across time is complicated by differing samples.
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