· Dollar slips as vaccine optimism saps demand for safe haven assets
The dollar slipped in Asia on Wednesday as signs of progress in beating back the Covid-19 pandemic sapped demand for the safest assets, while the pound was on tenterhooks ahead of a leaders meeting to try and salvage a Brexit trade deal.
The U.S. currency declined against most of its major peers as Britain began mass vaccinations and the U.S. edged closer to more fiscal stimulus. It slipped about 0.4% against the risk-sensitive Aussie and fell to a 2.5-year low against the yuan.
Sterling steadied above recent lows before a Wednesday dinner between British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen in Brussels that is seen as a last roll of the dice for a Brexit trade deal.
Against a basket of currencies, the dollar was 0.1% lower at 90.816, less than half a percent above a two-and-a-half-year trough it hit on Friday.
It slipped about 0.2% against the euro to $1.2126 and 0.3% and is tracking toward an annual loss of more than 7.5% against the common currency, its largest since 2017, as investors figure on low rates keeping it under pressure for a while yet.
The dollar dropped to 6.4975 yuan in offshore trade and 6.5229 onshore, which puts the yuan up by more than 10% from its May lows, boosted by the softer dollar and steady inflows into Chinese stocks and bonds.
“We expect dollar weakness and the risk positivity to continue into next year,” said Craig Chan, head of global FX strategy at Nomura, on an outlook call with journalists.
He forecasts the euro to hit $1.28 and the yuan to reach 6.2500 per dollar by the end of next year.
Dinner date
Sterling, which has whipsawed while trade negotiations are deadlocked, steadied against the weaker dollar but remained on edge going in to the leaders’ meeting.
Britain faces a chaotic split from the European Union if no trade deal can be struck by the end of the year because Brexit transition arrangements would expire without measures to protect about $1 trillion in annual trade from tariffs and quotas.
Investors are also tracking negotiations over U.S. coronavirus aid, with the Trump administration proposing a $916 billion package on Tuesday after congressional Democrats rejected a slimmer plan.
The Japanese yen was little changed at 104.14 per greenback, but J.P. Morgan sees a break of the psychologically key 100 level as only a matter of time with the U.S. Federal Reserve maintaining ultra-easy monetary conditions.
“When the Fed has the policy rate at zero, the dollar tends to weaken against the yen in a risk-on environment,” said Tohru Sasaki, the bank’s head of Japan market research in Tokyo.
“Dollar-yen is getting heavier and heavier.”
· Biden pick for defense secretary in spotlight amid concerns over military background
President-elect Joe Biden on Wednesday will formally introduce his pick for defense secretary, retired Army General Lloyd Austin, amid concern from some in Congress that the Pentagon should be led by a civilian rather than a career officer.
· Biden considering possible China ambassadorship for former Mayor Buttigieg: Axios
U.S. President-elect Joe Biden is considering appointing former South Bend, Indiana, Mayor Pete Buttigieg to a high-level ambassadorship, possibly to China, Axios reported here on Tuesday, citing people familiar with the matter.
Buttigieg, an Afghanistan war veteran who battled Biden for the Democratic Party presidential nomination, was among the top contenders for the role of ambassador to the United Nations, but Axios reported that Biden passed him over for this.
· Jamie Dimon says he wouldn’t touch Treasurys with a 10-foot pole at these rates
JPMorgan Chase CEO Jamie Dimon said that low-yielding Treasurys are a poor investment right now.
The yield on the 10-year Treasury was last at just 0.9% and has stayed below 1% since breaking below that threshold during the March pandemic collapse in stocks. Since bond prices must move inversely to yields, people like Dimon see little room for Treasurys to rally with rates already at such low levels.
· U.S. should freeze North Korea’s nuclear program before pursuing denuclearization, think tank says
The U.S. should focus on the short-term aim of freezing and capping North Korea’s nuclear program before pursuing the bigger target of dismantling facilities, a senior advisor at a think tank said this week.
That’s because going straight for the end goal of denuclearization did not work, said Victor Cha, Korea chair at the Center for Strategic and International Studies.
· No-deal Brexit fears rise as Johnson heads for last supper in Brussels
British Prime Minister Boris Johnson heads to Brussels on Wednesday for dinner with European Commission President Ursula von der Leyen in a last ditch attempt to avoid a tumultuous no-trade deal Brexit in three weeks’ time.
With growing fears of a chaotic no-deal finale to the five-year Brexit crisis when the United Kingdom finally leaves the EU’s orbit on Dec. 31, the dinner is being cast as a last chance to unlock the stalled trade talks.
· More EU summits might be needed to reach budget deal: Poland foreign minister
WARSAW (Reuters) - Poland and Hungary could reach a compromise, but another European Council might be needed to work out another deal on the EU budget that limits a proposed rule of law mechanism, Poland’s Foreign Minister Zbigniew Rau said on Wednesday.
“If we can’t reach an agreement in the next two days ... there will have to be another European Council this year or the negotiations will be moved to new circumstances under the Portuguese presidency,” Rau told Polish state radio.
Rau’s comments come after Poland’s Prime Minister Mateusz Morawiecki and ruling party leader Jaroslaw Kaczynski met with Hungarian Prime Minister Viktor Orban in Warsaw on Tuesday evening.
· German exports rise by less than expected in October
German exports rose by less than expected in October but foreign trade still gave Europe’s largest economy a boost at the start of the fourth quarter as it struggles to avoid slipping into a double-dip contraction.
Seasonally adjusted exports rose 0.8% on the month after an increase of 2.3% in September, the Federal Statistics Office said on Wednesday. Imports rose 0.3% after an upward revision in the prior month’s figure to an increase of 0.2%.
The trade surplus expanded to 18.2 billion euros.
Economists polled by Reuters had expected exports to rise by 1.2% and imports to increase by 1.0%. The trade surplus was predicted to come in at 18.0 billion euros.
· Number of short-time workers in Germany rose in November: Ifo
The number of employees on short-time work scheme in Germany rose in November, the Ifo economic institute said, suggesting that a partial lockdown to contain a second coronavirus wave took its toll on the job market in Europe’s largest economy.
The number of workers on short-time work scheme rose to around 2 million in November, up from around 1.8 million in October, Ifo said on Wednesday.
· China's factory prices fall more slowly in November, food weighs on consumer prices
China’s factory gate prices fell at a slower pace in November, adding to signs that the world’s second-largest economy is rebounding from the COVID-19 pandemic, but consumer prices unexpectedly declined for the first time in over a decade.
The producer price index (PPI) fell 1.5% from a year earlier, the National Bureau of Statistics said on Tuesday. The drop was smaller than the 1.8% decline forecast in a Reuters poll and the 2.1% drop in October.
Consumer prices fell on an annual basis for the first time since October 2009 but that was driven by a drop in pork prices as supply recovered from the African swine fever in recent years.
· China’s consumer prices drop for the first time since 2009
China’s consumer price index fell in November for the first time in about a decade as food prices dropped.
The consumer price index, a measure of inflation that tracks prices for a basket of consumer goods and services, fell 0.5% in November from a year ago, China’s National Bureau of Statistics said Wednesday.
The decline marked the first drop since October 2009, according to the Wind Information database.
Food prices fell 2% as pork prices declined 12.5% in November from a year ago.
The drop in prices for the Chinese meat staple follows a surge in the last year due to a shortage of pork as a result of an African swine fever outbreak.
· China's new yuan loans expected to rebound in November on policy support: Reuters poll
China’s new bank loans are expected to rebound in November from a one-year low the previous month as the central bank maintains policy support for the economy amid the global pandemic.
Chinese banks are estimated to have issued 1.40 trillion yuan ($214.53 billion) in net new yuan loans last month, compared with 689.8 billion yuan in October - the lowest in a year, the median estimate in a Reuters survey of 30 economists found.
That level would be slightly higher than 1.39 trillion yuan in new loans a year earlier.
Lending in China usually rebounds in November from a seasonal retreat in October, when a week-long National Day holiday falls.
Banks have already doled out 16.95 trillion yuan in new loans in the first 10 months, surpassing an annual record of 16.81 trillion yuan in 2019.
The central bank has rolled out a raft of emergency easing measures since February to cushion the economic blow from the pandemic and tough measures to contain it.
But with economic activity rebounding strongly, analysts like those at Nomura believe policymakers have shifted from a “wartime mode” to a “wait and see” approach.
Markets are wondering when authorities may start to withdraw stimulus and slow credit growth, but most analysts believe such a process would be gradual as long as the global economic outlook remains shaky.
China is unlikely to tighten its monetary policy soon, even though an economic recovery could gain steam in coming months, Xu Xianchun, a former vice head of the National Bureau of Statistics, told Reuters earlier this week.
· South Korea's new coronavirus infections at second highest in new wave
South Korea reported 686 new coronavirus cases on Wednesday as it battles a third wave of infection that is threatening to overwhelm its medical system.
The daily tally was the second-highest since the start of the pandemic, according to the Korea Disease Control and Prevention Agency (KDCA). New cases have been consistently around 600 over the past week.
Tougher social distancing rules took effect on Tuesday, including unprecedented curfews on restaurants and most other businesses.
· Kim's sister slams Seoul over questioning zero-virus claim
The influential sister of North Korean leader Kim Jong Un lambasted South Korea's foreign minister for questioning the North’s claim to be coronavirus free, warning Wednesday of potential consequences for the comments.
South Korean Foreign Minister Kang Kyung-wha said over the weekend that it’s hard to believe North Korea’s claim that there has been no virus outbreak on its soil. She added that the North has been unresponsive to South Korea’s offer for cooperation to jointly tackle the pandemic.
The North Korean leader's sister, Kim Yo Jong, responded in a statement carried by state media.
South Korea's foreign minister told a forum in Bahrain on Saturday that the pandemic had "made North Korea more North Korea — that is, more closed, very top-down decision-making process where there is very little debate on their measures in dealing with COVID-19.”
“They still say they do not have any cases, which is hard to believe," Kang said. "So, all signs are the regime is very intensely focused on controlling the disease that they say they do not have.”
· A passenger aboard a Royal Caribbean from Singapore has tested positive for COVID-19, forcing all guests to be quarantined in their cabins and the Quantum of the Seas ship to return to dock on Wednesday.
Singapore has been piloting the trips, which are open only to residents, make no stops and sail in waters just off the city-state. There were around 2,000 passengers aboard at the time who have all been confined to their rooms.
The global cruise industry has taken a major hit from the coronavirus pandemic, with some of the earliest big outbreaks found on cruise ships. In one case in February off the coast of Japan, passengers were stuck for weeks aboard the Diamond Princess with over 700 guests and crew infected.
· The world economy will be worse than expected in the short term, says central bank governor
The renewed outbreak of Covid-19 infections in some parts of the world has dampened the global economic outlook in the near term, said Philippine Central Bank Governor Benjamin Diokno.
“Recent events, I think, point to a deterioration rather than an improvement in the short run,” Diokno said Wednesday during a virtual panel discussion at the Milken Institute Asia Summit.
“So I would look at the fourth quarter up to maybe the first quarter of next year as worse than the IMF forecasts,” he added. The International Monetary Fund said in October that the global economy would contract by 4.4% this year — a projection that Diokno said was “kind of optimistic.”
That latest IMF forecast was an upward revision from its previous projection made in June.
Investors have also turned more optimistic in recent weeks following progress made on the Covid vaccine front. The U.K. on Tuesday became the first country to start vaccinating the public outside of trial conditions.
Outlook for the Philippines
The Philippine economy is also likely to bounce back strongly next year, after an expected 9% contraction this year, said Diokno. The Southeast Asian country was in a “position of strength” when the pandemic hit, which gave policymakers the financial and policy space to support the economy, he explained.
The country’s economic recovery next year will be led by sectors such as construction and real estate, he said.
· Oil inches higher as vaccine hopes outweigh build in U.S. stockpiles
Oil prices inched higher on Wednesday, paring earlier losses, as positive news on COVID-19 vaccines lifted investor hopes for a recovery in fuel demand, outweighing concerns over an unexpected jump in U.S. oil inventories last week.
Brent crude futures rose 11 cents, or 0.2%, to $48.95 a barrel by 0746 GMT, having gained 5 cents the previous day. U.S. West Texas Intermediate (WTI) crude futures climbed 9 cents, or 0.2%, to $45.69, after shedding 16 cents on Tuesday.
The American Petroleum Institute (API) said on Tuesday that U.S. crude oil, gasoline and distillate stocks rose sharply last week, with crude stocks jumping by 1.14 million barrels, against analyst forecasts in a Reuters poll for a draw of 1.42 million barrels.
Reference: CNBC, Reuters
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