Before the bell: Equity sentiment slips while all eyes are on OPEC
Equity markets had a positive run last week on the back of more progress being made with respect to developing a Covid-10 vaccine. In addition to that traders are more optimistic that President Trump will leave office quietly in January.
The main story of the week was that the drug being developed by AstraZeneca and Oxford University has an average effective rate of 70%, and it can be transported at -3 degrees which makes it more attractive from a manufacturing and distribution point of view. The medication also costs far less than other drugs being developed by Moderna and Pfizer-BioNtech.
“We are not out of the woods yet with respect to the coronavirus crisis but in the last few weeks there have been a several major headlines with respect to big progress being made in the development of a vaccine,” David Madden, market analyst at CMC Markets UK, tells City PM this morning.
“The health emergency is still a massive problem and this has been highlighted by the extension of restrictions in Germany and France.”
End of lockdown
England’s lockdown ends this week but in light of the fact the nation will enter a tiered restrictions system, it’s as if the lockdown didn’t end for much of the country, Maddens said.
“If there is an absence of positive news from the pharma sector we might see stocks drift lower but even if we do, we probably won’t see aggressive selling for fear there will be further breakthroughs on the vaccine front,” he noted.
In the immediate aftermath of the US election when it was looking likely that Joe Biden won, there were concerns that President Trump would go down the route of contesting certain results and that could lead to lengthy legal cases, Madden continued.
Trump has yet to concede that he lost but at the back end of last week he said that if Electoral College recognises the Biden victory, at its meeting in mid-December, he will accept their decision. At the weekend President Trump questioned whether the Supreme Court would hear his case about the allegations of voter fraud. A recount of votes in Wisconsin’s two largest counties declared that Biden won by a larger margin than initially thought.
It was reported that Mr Biden is lining up Janet Yellen, the former Fed chair, to be the Treasury Secretary. Dealers reacted well to this news seeing as Yellen is considered to be a safe pair of hands.
Today: OPEC+
OPEC+ will be in focus today as the group has to make a decision with respect to production plans for January. Yesterday there was an informal online meeting of the oil producers and there is division with respect to future output plans.
“Russia along with others are keen to maintain the current output plans that are in place. While Kazakhstan and the UAE are eager to raise output, as was originally planned. The nations need to reach a deal otherwise at the start of the New Year output will be increased by 2m barrels per day,” Madden said.
Iran is likely to remain in the news in the near term as Mohsen Fakhrizadeh – a top nuclear scientist – was killed. No organisation claimed responsibility for the attack. The move is likely to bring about higher tensions in the region.
China posted well received data overnight. The manufacturing PMI reading increased from 51.4 in October to 52.1 in November – its fastest of rate of expansion in three years.
The services PMI reading was 56.4, and that exceeded the 56 consensus estimate, and it was the largest level of growth since 2012. Stocks in mainland China are up, but equities in Hong Kong and Japan are in the red and European markets are tipped to open lower, Madden observed.
Gold took a knock last week as dealers were keen to dump the metal as it deemed to be lower risk and buy up higher risk assets, like stocks. On Friday, the commodity closed below its 200-day moving average for the first time since January.
Brexit
In over four weeks the UK will exit its transition period with the EU and a deal has yet to be reached. Talks will be in focus this week as both sides have yet to broker an agreement. Dominic Raab, the UK’s Foreign Secretary, is optimistic that a compromise with be made in relation to fishing, on the basis that a lot of progress has been made elsewhere.
The flash reading of Spanish CPI for November is tipped to rise from -0.9% to -0.8%. It will be posted at 8am (UK time).
At 9.30am UK time today the UK mortgage approvals and mortgage lending are expected to be 84,486 and £4.45bn respectively. The Bank of England consumer credit reading for October is anticipated to be £500m, Madden said: “That would be a big difference from the -£622m registered in September.”
The preliminary reading of Italian CPI is expected to be -0.5%, and that would an improvement from the 0.6% posted last month. It will be announced at 10am (UK time).
Germany’s CPI rate is anticipated to hold steady at -0.5% and it will be announced at 1pm (UK time).
The Chicago PMI reading is predicted to dip from 61.1 in October to 59 in November. The update will be announced at 2.45pm (UK time). “Shortly afterwards, the US pending homes sales will be posted and it is expected to show an increase of 1% in October,” Madden concluded.