A slightly negative & indecisive undertone to markets overnight.
The ASX closed 0.67% lower, Japan's Nikkei lost 0.23%, and the KOSPI shed 0.33%.
Worth noting that although they closed down on the day, both the Nikkei & KOSPI opened lower at -0.5% & -1.1% respectively.
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After last night's Brexit dinner, the UK & EU issued statements;
Britain, EU have until Sunday to decide on trade talks, says UK source
British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed on Wednesday they have until Sunday to take a “firm decision” about the future of trade talks, a senior Downing Street source said on Wednesday.
After what the source said was a “frank discussion” over dinner, the two sides agreed there remained “very large gaps” between them.
“The PM and VDL (von der Leyen) agreed to further discussions over the next few days between their negotiating teams,” the source said.
“The PM does not want to leave any route to a possible deal untested. The PM and VDL agreed that by Sunday a firm decision should be taken about the future of the talks.”
We have a new deadline!
The timing of the release wasn't ideal for GBP.
Amid thin trading conditions and 'very large gaps' to bridge, the pound fell ~100 pips.
Downing Street sources said that Sunday was now seen as a hard deadline for a decision on whether a deal can be reached, and that talks will only carry on beyond then if the “shape” of a deal has been agreed and “there are only details to clear up”.
The two day European Council meeting kicks off today, and there is hope that they can finally get the recovery fund and budget passed.
EU leaders to unblock EU budget, recovery fund, set new climate goals
European Union leaders are likely to unblock on Thursday a stalled 1.8 trillion euro package to help revive the economy after the COVID-19 pandemic and agree on new, more ambitious CO2 emissions reduction goals to fight climate change.
During the two-day talks, leaders of the 27 EU countries will also discuss COVID-19 vaccines, resetting relations with Washington and sanctions on Turkey for drilling in contested waters in the Mediterranean.
But the focus will be on unblocking a historic joint EU borrowing of 750 billion euros to finance the post-pandemic recovery and the 1.1 trillion euro EU budget for 2021-2027 that focuses on digitalisation and fighting climate change.
Agreeing on the money is one of the conditions set for a deal on a proposal that the EU cut greenhouse gas emissions by 55% by 2030 compared to 1990 levels rather than the currently agreed goal of 40%.
“I am confident that we can find an agreement on a common package to allow for the swift implementation of both the multi-annual financial framework and the recovery fund,” summit chairman Charles Michel said in a letter to leaders.
Poland and Hungary have been blocking the financial package because access to the money is, for the first time, to be linked to respecting the rule of law. Since Warsaw and Budapest are under EU probes for undermining the independence of courts and media, they are at risk of losing billions from the EU.
But Germany, which holds the rotating presidency of the 27-country bloc until the end of the year, struck a deal with the two countries that will allow them to lift their veto.
Under the deal, EU leaders will issue a declaration, stating that the rule-of-law link to funds will be applied objectively and only to safeguard the proper use of EU money, rather than to punish countries under the separate EU rule-of-law probes.
The practical application of the regulation could anyway be delayed by about two years because Poland and Hungary can ask the EU’s top court to decide if it is in line with EU treaties.
This could push the application of the new rules past the 2022 elections in Hungary, which some EU officials said Hungarian Prime Minister Viktor Orban was keen on.
Hungary’s foreign minister Peter Szijjarto has already declared victory and Polish President Andrzej Duda spoke of a preliminary deal.
Ambassadors of EU countries in Brussels gave the agreement a positive initial review, although they left the final decision to leaders on Thursday.
Democratic leaders are rejecting GOP offers on coronavirus relief, pointing to ongoing bipartisan talks as the best way forward. But behind the scenes, the Senate Republican majority is increasingly skeptical of those efforts.
After a flurry of momentum over the last week, the stimulus talks are back to where they’ve been for months: nowhere. Congressional leaders have retreated to their corners, blaming each other for inaction as the economy stumbles and the U.S. nears 300,000 dead from the virus. Time is running short in the lame duck, with as few as nine days for Congress to deliver much-needed relief.
Senate Majority Leader Mitch McConnell is loath to divide Republicans as he confronts two years with, at best, a slim majority. And the bipartisan $908 billion framework includes $160 billion in aid to states and localities that is attracting pronounced GOP opposition — just as a liability shield is being shunned by Democrats.
On Tuesday in their private party conference call, Senate Republicans wrestled over whether cutting a deal that trades the two is even doable. Afterward, McConnell urged negotiators to drop liability reform and state and local aid from the discussion, deeming them too contentious to be workable in the breakneck lame duck session.
House Majority Leader Steny Hoyer reiterated his support for the bipartisan talks Wednesday, but also acknowledged that time is running short to get an agreement. “We need to get this done,” Hoyer told reporters. “And whatever it takes, whether it’s Speaker Pelosi and Leader McConnell, in a room, coming to grips with an agreement.”
Republican officials questioned just how many of their members would support a short-term liability shield in exchange for $160 billion for local governments. Some worry fewer than half the Senate Republicans are inclined to support a deal based around that exchange.
Even if the $908 billion deal loses a significant bloc of Senate Republicans, Democrats say it would still pass the Senate’s 60-vote threshold. And with time running out on the lame duck session, they say that’s the best — and only — play.
“Take the $908 billion deal. Are you going to get all the Democratic votes? Probably not. Certainly not going to get all the Republican votes. But it will still pass. Put it on the damn floor,” said Sen. Jon Tester (D-Mont.).
Facebook faces U.S. lawsuits that could force sale of Instagram, WhatsApp
Facebook Inc could be forced to sell its prized assets WhatsApp and Instagram after the U.S. Federal Trade Commission and nearly every U.S. state filed lawsuits against the social media company, saying it used a “buy or bury” strategy to snap up rivals and keep smaller competitors at bay.
Zuckerberg told employees in July that Facebook would “go to the mat” to fight a legal challenge to break up the company, calling it an “existential” threat, according to audio of internal company meetings published by The Verge.
Although breakup remedies are rare, some antitrust experts said the case was unusually strong given damning statements by Zuckerberg plucked from Facebook’s own documents, like a 2008 email in which he said “it is better to buy than compete.”
Other experts such as Seth Bloom of Bloom Strategic Counsel said the FTC complaint was “significantly weaker” than the DOJ’s lawsuit against Google.
“We’re talking about acquisitions that are six or eight years old and it will be difficult for a court to order divestitures of many years ago,” Bloom said.
Investors echoed similar concerns.
“I do not know if the FTC or DOJ will be successful in breaking Facebook up. I’m assuming this will be dragged out in the courts as FB defends itself,” said Daniel Morgan, a portfolio manager at Synovus Trust in Atlanta, Georgia.
The lawsuits are the biggest antitrust cases in a generation, comparable to the lawsuit against Microsoft Corp in 1998. The federal government eventually settled that case, but the yearslong court fight and extended scrutiny prevented the company from thwarting competitors and is credited with clearing the way for the explosive growth of the internet.
Facebook shares fell as much as 3% after the news before paring losses to close down 1.9%.
S&P DJI to remove 21 Chinese firms from equities, bond indices
S&P Dow Jones Indices said on Thursday it would remove a total of 21 Chinese companies from its equities and bond indices, including Hikvision and SMIC, following a Trump administration order prohibiting purchase of certain Chinese securities by U.S. investors.
Securities from 10 Chinese companies will be deemed ineligible from equity indices prior to the market open on Dec. 21, the index provider said.
S&P DJI will also remove 11 additional securities in its fixed income indices prior to the open on Jan. 1.
Hikvision and SMIC did not immediately respond to a request for comment.
The United States in November unveiled an executive order prohibiting U.S. investments in Chinese companies, ramping up pressure on Beijing after the U.S. election. The order is effective Jan.11.
The move was designed to deter U.S. investment firms, pension funds and others from buying shares of 31 Chinese companies that were designated by the Defense Department as backed by the Chinese military.
Last week, index provider FTSE Russell said it will delete shares of Hikvision and seven other Chinese companies from its FTSE Global Equity Index Series and other products and that it had acted on feedback from subscribers and other stakeholders.
China Races Toward Plan to Blacklist, Redlist Firms for Behavior
China is making swift advances with a system for measuring the social creditworthiness of companies, a sweeping data-collection effort that could solidify Beijing’s control over foreign and domestic enterprises and possibly challenge the dominance of U.S. credit-rating companies.
The corporate social credit system was originally dreamed up two decades ago, but it has since expanded into an ambitious national project that is now taking shape, according to a new, 95-page report from the consulting firm Trivium China for the U.S. China Economic & Security Review Commission. The CSCS effort gathers information on companies from at least 44 state agencies and their branch offices in every province across the country.
“The scale of this data aggregation scheme cannot be overstated,” the report said. “In a U.S. context, this would be roughly equivalent to the IRS, FBI, EPA, USDA, FDA, HHS, HUD, Department of Energy, Department of Education, and every courthouse, police station, and state agency sharing records across a single platform.”
Compiling this information is aimed at allowing government officials, banks, suppliers and consumers to check on a company’s behavior, helping advance a broader push to clean up business in China. Corporate actions could be analyzed, potentially leading to rewards like lower taxes and government contracts or punishments like fines and prohibitions on activities.
The CSCS would “penalize companies with poor compliance records by reducing their access to the market and subjecting them to public censure via ‘blacklists,’ while rewarding consistently-compliant companies with economic incentives and public praise via ‘redlists,’” the report said.
The system could enhance China’s ability to craft effective policy, possible giving it a geopolitical edge globally.
“China’s push towards the rapid, large-scale consolidation of government data, of which the CSCS is a part, has the potential to enhance the bureaucratic efficiency, predictive capacity, and regulatory responsiveness of the Chinese state, which could in turn enhance Party legitimacy and control in China and in other countries,” the report said.
The report said technological sophistication of the system has been overstated, both in China and abroad. “The degree to which the CSCS currently automates data collection and regulatory processes is low,” the authors said. “Although China is piloting technologies designed to remotely detect operational violations -- such as when a factory exceeds emissions quotas -- there is no known instance in which automated data collection leads to the automated application of sanctions without the intervention of human regulators.”
Japan's November wholesale prices slump, auto demand rebound offers hope
Japanese wholesale prices in November fell 2.2% from a year earlier, marking the biggest drop in six months in a sign the lingering pain from the coronavirus pandemic is keeping the economy under deflationary pressure.
But some goods saw prices rebound due to a pick-up in global automobile demand, suggesting a gradual recovery in trade was underpinning the export-reliant economy.
The fall in the corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, matched a median market forecast.
It followed a 2.1% drop in October and marked the biggest year-on-year fall since a 2.8% decrease in May, Bank of Japan data showed on Thursday.
While slumping oil costs continued to weigh on overall wholesale prices, machinery, nonferrous metals and other goods used for auto production saw prices pick up, the data showed.
Wholesale prices are considered among leading indicators of the consumer price index, which is closely watched as a key gauge for the BOJ in deciding monetary policy.
After suffering its worst postwar contraction in the second quarter, Japan’s economy rebounded in July-September helped by improved exports and consumption. But many analysts expect a third wave of COVID-19 infections to keep any recovery modest.
Looking ahead, it's ECB Bazooka day!
Full preview here;
And ING's cheat sheet.
As Lagarde's press conference begins, U.S. CPI data will be released.
ING's Robert Carnell comments;
Today's US CPI figures are expected by the consensus to confirm this muted inflation picture, with a dip in the headline and core CPI rates to 1.1% and 1.5% respectively.
With PCE inflation also running at around 1.2%, the Fed remains well off its new "consistently higher than 2%" target, and markets may have to rethink this prospective "surging inflation" narrative at some point.
If and when they do, and today might not be that day, then US Treasury yields, which have been pushing steadily higher, may stage a short reversal.
The impact this has on the USD is less obvious, but I'd hazard a guess that it will play into the softer USD theme.
Anyway, keep watching those breakeven rates for a possible reversal as I think the market is getting ahead of itself here.
The weekly U.S. jobs data will also be released at the same time.
Continuing jobless claims have consistently pushed lower each week since September, and that trend is expected to continue today.
Initial claims have stabilised between 711k & 797k for the past 7 weeks.
Later in the day, BoC's Beaudry will deliver an update after the central bank's decision to maintain policy unchanged yesterday.
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