The softer risk tone continued overnight, although U.S. futures are starting to perk up a little (7AM GMT).

U.K News

Brexit talks continue, as the EU hints at tentative progress in Brexit negotiations to level playing field, and Barnier says Brexit deal could be agreed this week if the UK compromises over fishing

Nothing particularly new in either piece, with hope and positivity mainly coming from the EU side.

There is also talk that the furlough scheme could be used to support firms hit hardest by no-deal Brexit (and even without a no-deal Brexit, support will likely be extended).

Businesses impacted by no-deal Brexit disruption could be able to access wage support, cash grants and emergency loans already set up by Rishi Sunak to mitigate the impacts of the coronavirus pandemic.
Government sources have signalled that the eligibility of the job retention scheme, which pays 80 per cent of wages to employees who are unable to work due to covid-19, could be widened after January 1.
Similar tweaks could be made to Government-backed loans, which have already paid out £65bn, as well as emergency cash grants available to firms that have been forced to shut or have seen their trade disrupted.
In the event of no-deal, it means that firms such as car manufacturers, which face being slapped with tariffs and disruption to supply chains, could secure financial support until the end of March, when the schemes are due to end.
Separately, The Telegraph understands that businesses are likely to be able to apply for catch-all covid emergency loans of between £25,000 and £10 million plans from April, under a successor scheme being considered by Rishi Sunak.
Whitehall sources indicated that the Treasury’s existing £65bn programme, including bounce back loans (BBLS) and coronavirus business interruption loans (CBILS), will be extended from January until the end of the financial year.
However, Mr Sunak is likely to announce that a successor scheme will begin in April, which will wrap a number of existing loans together.
Subject to  approval, this will see the Treasury continue to guarantee up to 80 per cent of the loans up to £10m for firms that are deemed viable after the pandemic, according to one source.
The lower-range of the scheme is expected to be £25,000, the lowest loan that most banks are prepared to offer.
Currently the Government guarantees 100 per cent of bounce back loans of up to £50,000, which are available to small and medium sized businesses, while CBILs include an 80 per cent guarantee and are capped currently at £5 million.

A bipartisan group of lawmakers unveiled a $748 billion stimulus compromise, separating out the most contentious sticking points

A bipartisan group of centrist members of Congress on Monday presented a pair of compromise measures totaling $908 billion that were intended to break the stalemate in negotiations on another round of stimulus to address the economic fallout from the virus.
One of the bills would provide $748 billion to fund an array of programs that have generated consensus in the stimulus talks, including the revival of federal unemployment payments and a popular small business loan program, as well as funding for vaccine distribution, food aid, schools and other institutions struggling to stay afloat because of the pandemic. A second measure includes the two biggest sticking points to a deal: $160 billion to bolster state and local governments, and a temporary coronavirus liability shield for businesses, nonprofits, schools and hospitals.
McConnell said his party was ready to pass something on COVID-19 and called on Democrats to do the same in a speech that avoided some of the finger-pointing from both parties last week.
“The next several days are going to bring about one of two outcomes,” McConnell said as he opened the Senate.
“Either 100 senators will be here shaking our heads, slinging blame and offering excuses about why we still have not been able to make a law. Or, we will break for the holidays having sent another huge dose of relief out the door for the people who need it,” he said.

The clock is ticking, with a Friday deadline and current benefits expiring on December 26th.

New lockdowns and tougher restrictions could inject further urgency

Via Bloomberg;

New York is heading toward a second full shutdown should the number of coronavirus cases and hospitalizations continue at the current pace. The first Covid-19 vaccine shots were administered by U.S. hospitals Monday, the initial step in a historic drive to immunize millions of people. Deaths in the country passed the grim milestone of 300,000.


London will be placed under England’s toughest coronavirus restrictions from Wednesday.
Hong Kong plans to introduce new virus relief measures before Christmas and Singapore is creating a new “bubble” facility near the airport.
Elsewhere in Europe, the Dutch government is imposing stricter measures for five weeks to reverse a jump in daily cases. Germany will start a hard lockdown Wednesday.
Italy is also considering more stringent nationwide coronavirus restrictions during the Christmas holidays, the health minister said on Monday, after scenes of big gatherings in many cities over the weekend raised worries of a new spike in infections.

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China’s Recovery Gathers Pace, Setting Up Strong Growth for 2021

China’s recovery gathered momentum in November, supported by strong demand from home and abroad, putting the economy further ahead of its peers as the only major one likely to expand this year.
  • Industrial output rose 7% in November from a year earlier, in line with the median estimate in a Bloomberg survey of economists.
  • Retail sales expanded 5% in the period, as projected.
  • Fixed-asset investment grew 2.6% in the first 11 months of the year from the same period in 2019, also as expected
  • The unemployment rate inched lower to 5.2% from 5.3%

Key Insights

  • The data shows the breadth of the recovery since a contraction in output in the first quarter triggered by the coronavirus pandemic. An industrial-led rebound has been followed by a pickup in consumer spending. Exports have rocketed in recent months as a return to virus restrictions in many of China’s biggest markets fueled demand for medical equipment and work-from-home electronic devices
  • Retail sales were likely boosted by the ‘Singles’ Day’ shopping festival on Nov. 11, signaling solid demand. For the first 11 months of the year, sales were still down 4.8% compared with the same period in 2019
  • The profitability of industrial firms has rebounded, although some companies are struggling under large debt loads. A series of recent defaults by state-owned enterprises roiled local debt markets and is making it harder for some to borrow money
  • The data points to fourth quarter growth that’s likely to be better than the previous three months, Fu Linghui, a spokesman for the National Bureau of Statistics, told reporters in Beijing. The retail recovery is on track and consumption will remain the main growth engine, he said. He also projected “relatively fast” expansion in 2021
  • Economists surveyed by Bloomberg predict growth will accelerate to 5.9% in the current quarter and reach 2% for the full year
  • The data confirms the view that China’s recovery accelerated in the final quarter of the year, Liu Li-gang, chief China economist at Citigroup Inc. said in an interview on Bloomberg TV, predicting growth of 5.9% in the quarter. The recovery though has been unbalanced, with industrial production rebounding “extremely fast,” while domestic demand, as reflected by retail sales, remaining “quite sluggish.” Liu said he expects a cyclical rebound in consumption next year
  • The improvement in industrial production was “underpinned by robust domestic demand and very strong exports,” Louis Kuijs from Oxford Economics wrote in an email. “We expect the macro policy stance to shift from expansionary to contractionary, with the overall government deficit declining and monetary policy makers aiming to contain macro leverage.”
  • Investment continues to be fueled by state-owned businesses, which grew 5.6% in the January-November period from a year ago. Fixed-asset investment by private companies gained 0.2% in the period, the first time it was positive this year
  • The central bank continued to provide ample liquidity to support the recovery, injecting 950 billion yuan ($145 billion) of one-year cash via the medium-term lending facility on Tuesday, more than offsetting the 600 billion yuan that matures in December

RBA Minutes

Key Points via Livesquawk

  • RBA Ready To Buy Bonds In Whatever Amount Needed To Maintain 3-Year Yield Target
  • Latest Policy Easing Had Kept A$ Lower Than Otherwise Would Be
  • Does Not Expect To Raise The Cash Rate For At Least Three Years
  • Will Not Raise Rates Until Inflation Sustainably In 2-3% Target Band
  • Prepared To Do More If Needed, Focus On Bond Buying Program
  • Will Review Size Of Program At Future Meetings And Its Effect On Economy

Westpac expect further QE in May 2021 (and beyond)

Yesterday we forecast that the RBA Board would extend the current $100 billion QE program with a second $100 billion program (start date corrected to early May from June, 2021).
The December Minutes give clear support for this View.
Two years of QE is unlikely to be currently priced into the curve but the approach set out in the December Minutes – “substantial policy support; considerable period”; “protracted recovery” all indicate that the RBA is certainly contemplating further QE.
In particular we are likely to hear more early in the new year as indicated by the Minutes, “Members agreed to keep the size of the bond purchase program under review”.

Draghi, Rajan Lead Call to Arms to Avert Global Solvency Crisis

Mario Draghi, previously president of the European Central Bank, and Raghuram Rajan, the ex-governor of the Reserve Bank of India, headed a Group of 30 study that looked at the response to the crisis.
It says the massive flood of liquidity pumped into economies to keep companies afloat during shutdowns is unsustainable, and a “cliff edge” of insolvencies is coming as support programs lose funding and capital is eaten up by losses.
“The solvency crisis is already eroding the underlying strength of the business sector in many countries,” according to the report. “The problem is worse than it appears on the surface, as massive liquidity support, and the confusion caused by the unprecedented nature of this crisis, are masking the full extent.”
The report recommends three areas of core principles for policy makers to focus on:
The long-term health of businesses, which involves shifting from broad-based to targeted support
The most-productive use of resources, which means relying on private-sector expertise to assess the viability of companies, and ensuring social objectives such as greening the economy also accelerate the recovery
Preventing collateral damage by ensuring the financial system is robust
The report acknowledges that its recommendations require “hard choices” -- such as winding down broad aid programs and limiting government support to areas where the market is failing -- that could cause a political backlash.
It also urges steps to make equity injections into companies easier -- an idea already circulating in policy circles but which has yet to get much traction -- and reforming bankruptcy laws to save companies that are “fundamentally sound but have unsound balance sheets.”

Apple plans 30% increase in iPhone production for first half of 2021 - Nikkei

Apple Inc plans to manufacture up to 96 million iPhones in the first half of 2021, a nearly 30% year-on-year increase, Nikkei reported on Tuesday.
It has asked suppliers to produce around 95 million to 96 million iPhones, including the latest iPhone 12 range as well as older iPhone 11 and SE, though shortage of key parts could threaten the target, the report said, citing people familiar with the matter.
This would mark a 20% rise from 2019 though the target will be regularly reviewed and revised in response to any changes in consumer demand, according to the report.
The tentative full-year forecast that the iPhone maker shared with its suppliers suggests it plans to make up to 230 million iPhones in 2021, including both old and new models, the report said.

Enlarged fiscal deficits.... Have the Fed de-anchored inflation expectations? 👇

The day ahead;