Stocks are off to a positive start for December, bonds and dollar a little softer, oil indecisive amidst OPEC uncertainty.
DXY couldn't hold above 92, with 91.75 the next level of support.
Overnight Data Snapshot
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Commenting on the latest survey results, Bernard Aw, Principal Economist at IHS Markit, said:
"Latest PMI data showed the Australian manufacturing sector regained recovery momentum midway through the fourth quarter, with output and new orders rising at faster rates in November.
"Reduced restrictions on business operations and personal mobility boosted business activity, with makers of consumer goods reporting particularly strong growth in production.
"With a sustained recovery in output and sales, the survey also indicated a return of jobs growth in November, with the rate of job creation the strongest for two years.
"That said, the manufacturing upturn may be constrained in the months ahead by the reduced availability of input materials due to local logistical issues and global freight capacity disruptions."
Commenting on the latest survey results, Usamah Bhatti, Economist at IHS Markit, said:
"The Japanese manufacturing sector continued to edge towards more stable operating conditions in November.
The headline PMI was pushed to its highest reading for 15 months in the latest survey period, following softer falls in both production and new orders.
"Yet, concern remains that weaknesses caused by the COVID-19 pandemic persisted as both output and new orders both fell for the twenty-third month in a row.
Furthermore, infection rates have surged in both domestic and international markets which resulted in a renewed fall in export orders, which dampened confidence further.
"However, Japanese manufacturers continue to report a positive outlook beyond the immediate concerns surrounding the sector. Around 33% of survey respondents foresee a rise in output over the coming year amid hopes that the pandemic dissipates and a robust economic recovery.
Currently, IHS Markit expects industrial production to grow 7.3% in 2021 although this is from a lower base and does not fully recover the output lost to the pandemic."
Commenting on the China General Manufacturing PMI ™ data, Dr.
Wang Zhe, Senior Economist at Caixin Insight Group said:
“The Caixin China General Manufacturing PMI rose to 54.9 in November from 53.6 the previous month, the highest reading since November 2010. The Manufacturing PMI has now signaled an improvement in conditions for seven months in a row as the postepidemic economic recovery continued to pick up speed.
Manufacturing continued to recover and the economy increasingly returned to normality as fallout from the domestic Covid-19 epidemic faded.
Both demand and supply accelerated as the subindexes for total new orders and output reached 10-year highs.
Overseas demand improved substantially as the measure for new export orders stayed in expansionary territory for the fourth month in a row, rising from the previous month. As production overseas was subdued by uncertainties brought by the pandemic, Chinese enterprises saw an increase in export orders.
But the improvement in overseas orders was slightly weaker than that of
Employment continued to recover.
The employment subindex stayed in expansionary territory for the third straight month as strong growth in supply and demand gradually exerted influence on the job market.
Although employment’s expansion still lagged behind orders and output, the subindex hit the highest level since May 2011. More and more surveyed enterprises began adding staff to meet strong market demand.
There are clear signs that manufacturers were adding to their inventories.
Growth in stocks of finished goods, quantity of purchases and stocks of purchases all accelerated, as the three measures reached their highest since February 2018, January 2011, and February 2010, respectively.
Meanwhile, the active market led to longer delivery times from suppliers.
Inflationary pressures grew as prices rose at a faster pace.
In November, the gauges for input and output prices rose further into expansionary territory. Respondents said a sharp rise in the prices of raw materials, especially metals, was a major reason behind the price hike.
Strong demand coupled with a rise in costs pushed up factory gate prices further.
“To sum up, manufacturing recovered at a faster clip in November as supply and demand improved at the same time. Employment recovered markedly and overseas demand kept expanding.
Manufacturing enterprises added to their inventories to meet demand and they were quite confident about the economic outlook for the next 12 months. The gauge for future output expectations stayed high.
“We expect the economic recovery in the post-epidemic era to continue for several months. At the same time, deciding how to gradually withdraw the easing policies launched during the epidemic will require careful planning as uncertainties still exist inside and outside China.”
The Reserve Bank of Australia left its cash rate unchanged at a record low of 0.1% during its December meeting, as widely expected, after slashing it from 0.25% in November.
Policymakers reaffirmed their commitment to do more to support jobs, incomes, and businesses in Australia.
The board said it was not expecting to increase the cash rate for at least three years, adding that it will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation.
The board mentioned it will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target.
The Committee also said that the economic recovery is under way and recent data have generally been better than expected.
Exports from South Korea rose 4 percent from a year earlier to USD 45.81 billion in November 2020, after a 3.8 percent fall in the previous month, but below market consensus of 6.8 percent rise, though the resurgence in new virus cases still poses risks of delaying a full-fledged recovery, a preliminary estimate showed.
Exports of chips jumped by 16.4 percent, the fifth consecutive month of increase, while those of automobiles also rose 2.1 percent. On the other hand, exports of displays also surged 21.4 percent. Exports of ships soared 32.6 percent on the improves demand for liquefied natural gas vessels. By contrast, outbound shipment of petrochemical fell 8.3 percent from a year earlier.
Among key trade partners, exports were up to the US (6.8 percent), China (1 percent), and the EU (24.6 percent). Conversely, exports plunged to Japan (-12 percent).
Opec ministers ended a virtual meeting on Monday without agreeing on production policy for next year and postponed further talks with their non-Opec allies until Thursday.
Saudi Arabia has proposed extending Opec-plus production cuts at the current targeted level of 7.7 million barrels per day for a further three months, but that would depend on several conditions being met, sources told Energy Intelligence.
First, it would require the unanimous consent of all of the alliance's members to keep the current cuts in place during the first quarter of 2021.
Second, all countries that overproduced in 2020 would need to make catch-up cuts in a timely fashion. And third, the sources say, all members of the alliance would need to commit again to 100% compliance with the pact.
Reaching an agreement on these conditions, or arriving at an alternative policy, looked to be increasingly challenging and led Opec-plus to push back a planned final session of negotiations from Tuesday to Thursday, according to multiple reports.
Without some sort of extension, the group is set to ease its production cuts to 5.7 million b/d, releasing about 2 million b/d of oil back into the market.
Thursday's meeting is a critical one for the producer alliance. One wrong step this week could undo much of its painstaking work over the past year to reduce oil supply after the Covid-19 pandemic triggered a sharp fall in demand.
But an extension of cuts at the current level is by no means a foregone conclusion.
"Tomorrow's meeting will be difficult and require negotiations and patience," Iranian Oil Minister Bijan Zanganeh was quoted as saying by his country's Shana news agency, when the meeting was still scheduled for Tuesday.
Most noteworthy, perhaps, is that the United Arab Emirates (UAE) has not committed itself to a particular course of action. This could point to a loosening of close ties among Gulf Arab states, led by Saudi Arabia, that have traditionally helped to bind Opec together.
Energy Intelligence has recently reported that the UAE is studying whether or not continuation of its 60-year membership in Opec remains in its long-term interests.
This initiative reflects the challenge posed by the energy transition and the possibility that the country may need to fast-track production to avoid leaving oil in the ground that the world no longer wants or needs (IOD Nov.17’20).
The UAE is not alone in its discomfort with an extension of production cuts at high levels. Other countries oppose the Saudi push to prolong cuts for their own reasons.
Some resent the current Saudi-Russian domination of Opec-plus policymaking. But most feel that the prolonged deep production cuts have had a devastating effect on their oil revenues, and they are apparently willing to take the risk that an increase in output could send prices crashing again.
Non-Opec Kazakhstan, for example, is pushing for the alliance to roll back its production cuts in January in line with the originally agreed schedule, said one source.
Despite Russia floating a proposal to allow output to rise in January, Moscow and Riyadh are generally understood to be on the same page at the highest level about the need to keep working together on supply management (IOD Nov.27'20).
Earlier this year Opec-plus agreed to cut oil output in three phases -- by almost 10 million b/d in May-July, by some 7.7 million b/d in August-December, and by around 5.7 million b/d from January 2021 through April 2022.
However, slower-than-expected demand recovery and a second wave of coronavirus infections and lockdown measures have forced the group to consider postponing the previously agreed increase in output of around 2 million b/d in January.
Algerian Energy Minister Abdelmajid Attar, Opec's current president, told the meeting on Monday that distribution of Covid-19 vaccines would only start to have a positive effect on oil demand in the second half of 2021.
"The road to recovery is long and bumpy. It requires great patience," he warned.
Attar said global oil demand was expected to remain some 3.7 million b/d below the 2019 level next year, even though optimism about vaccines has recently pushed Brent crude oil prices up to levels around $48 per barrel.
Opec's own internal calculations indicate that oil inventories will rise in the first quarter of next year if the production cuts are relaxed -- and that could trigger a new slide in prices.
U.S. Treasury Secretary Steven Mnuchin on Monday urged Congress to tap into $455 billion of unused emergency relief funds to fuel an additional, targeted round of pandemic economic assistance for American households and businesses.
“Based on recent economic data, I continue to believe that a targeted fiscal package is the most appropriate federal response,” Mnuchin said in prepared testimony to the Senate Banking Committee released ahead of a hearing scheduled for Tuesday. Mnuchin will appear alongside Federal Reserve Chair Jerome Powell.
“I strongly encourage Congress to use the $455 billion in unused funds from the CARES Act to pass an additional bill with bipartisan support,” Mnuchin said. “The Administration is standing ready to support Congress in this effort to help American workers and small businesses that continue to struggle with the impact of COVID-19.”
The clock is ticking. Millions still depend on these programs.
A slowing recovery and a surging pandemic mean the United States is entering a “challenging” few months, with the potential deployment of a vaccine still facing the hurdles of production and mass distribution before its impact on the economy becomes clear, Fed chair Jerome Powell said on Monday.
“The rise in new COVID-19 cases, both here and abroad, is concerning and could prove challenging for the next few months,” Powell said in remarks prepared for delivery to a congressional hearing on Tuesday morning.
“Recent news on the vaccine front is very positive for the medium term. For now, significant challenges and uncertainties remain, including timing, production and distribution, and efficacy across different groups. It remains difficult to assess the timing and scope of the economic implications of these developments with any degree of confidence.”
Powell’s remarks are his most detailed yet on how the potential arrival of a vaccine may influence the Fed’s outlook, and the evolution of a recovery that the Fed chair acknowledged is slowing.
That, in turn, could shape opinions about how much more government support may be needed to help families and businesses bridge the gap between the current recession and the post-pandemic economy.
Poland and Hungary are open to new proposals aimed at resolving a row with the European Union over linking funds from its budget and recovery fund to the rule of law, a Polish government spokesman said on Monday.
“We’re open to new proposals and we are convinced an agreement can be reached, but we stress that it has to be compliant with EU treaties and conclusions from the European Council meeting in July,” government spokesman Piotr Muller said after the meeting.
He added that both countries are trying to convince other EU partners that “such arbitrary criteria of assessing rule of law in other countries would be dangerous” for the future of European integration.
“And they can de facto lead to a future disintegration of the EU, which no one wants,” he added.
Tesla will be added to the S&P 500 in a single step despite its more than $500 billion market capitalization, S&P Dow Jones Indices said on Monday, forgoing a possible phased approach that was considered to ease the impact of adding such a large company to the U.S. stock benchmark.
The stock will be added at its full float-adjusted market capitalization before the open of trading on Dec. 21, the index provider said. Float-adjusted means that only shares available to the public are considered when evaluating a company’s weighting. The company that Tesla will replace will be named on Dec. 11, according to a press release.
The decision follows feedback from the investment community, which S&P Dow Jones Indices sought due to the difficulty of adding a company of Tesla’s size. The electric vehicle maker will be the largest company ever to be added to the S&P 500.
Looking ahead, final manufacturing PMI's dominate the calendar but are unlikely to offer any brand new insights. EZ inflation this morning will be monitored with an eye on the ECB meeting. I'm not sure why.
The bazooka will be fully loaded regardless.
Powell's testimony speech has already been released, but further comments should filter through during the session.