Daily Market Pulse

New sanctions to Chinese officials by the U.S


The greenback had a mixed trading day against its major peers on Monday. A sharp drop by GBP/USD helped offset the USD downside against the JPY and steered the broad-based DXY Index marginally flat on balance. Yet, U.S stock markets and government bond yields lower as sentiment was affected by new sanctions of Chinese officials by the U.S, as well as a failed post-Brexit deal on Monday. Turning to data, U.S. consumer borrowing rose ($7.2 billion) in October by less than forecasted ($15.5 billion), reflecting a decline in credit-card balances as the pandemic continued to limit some purchases. Revolving credit declined for the seventh time in the past eight months. Today, the market will remain focused on the U.S stimulus, U.S-China relationship, and progress of post-Brexit trade talks.


Reflecting a tough start to the week, the EUR dropped 0.10% against the greenback on Monday. The EUR was priced in by fading chances of a post-Brexit deal, as well as possible turmoil in the U.S and China relationship, but losses were limited after German industrial output beat expectations in October. Official data showed that industrial production rose 3.2% month-on-month, driven by a strong performance in Germany's key car industry. It was the sixth month in a row that production increased. Elsewhere, Hungary and Poland must offer a clear signal through the day that they’ll lift their veto over the European Union’s jointly financed stimulus plan or risk losing billions of euros in aid, officials warned. Moreover, market participants will keep an eye on the Germany ZEW Sentiment Survey and Eurozone Q3 GDP, which both are expected to be released later today.


The Pound, which had traded at its strongest since 2018 last week, dropped 0.29% against the USD after the post-Brexit final agreement failed again to happen on Monday. The losses were staunched after an unexpected joint statement by British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen, indicating that the PM may be heading to Brussels for in-person talks in the coming days in an attempt to salvage a Brexit trade deal. The talks are still stuck on leveling the playing field, governance, and fisheries. Although overshadowed by Brexit headlines, the British Retail Consortium said year-on-year total retail sales growth slowed to 0.9% in November from 4.9% in October, the weakest spending growth since a 5.9% fall in May. Thus, illustrating that online sales were able to fill more of the gap than in the first lockdown in March. Today, the market will remain focused on the progress of post-Brexit trade talks.


As a subdued appetite for risk globally spilled over on Monday, the Japanese yen received a little more attention. The JPY edged 0.13% higher against the USD after increased tensions between the U.S and China, as well as a growing number of negative headlines on the persistent stalemate in the U.K.-EU talks on a post-Brexit agreement. Today, an upward revision to the Japan Q3 GDP (5.3% quarter-over-quarter) and the government delivering on fiscal package provides support to the JPY. The last, Japanese PM Suga announced an anticipated stimulus package, worth $708bn overall. "To protect the lives and livelihoods of the people, this package has been compiled to maintain jobs and businesses, restore the economy, and develop new opportunities for growth like green and digital areas," Suga said. It's Japan's third fiscal package this year.


The CAD kept relatively firm against a stronger dollar, shedding about 0.13% while major peers such as EUR dropped 0.10% and GBP was 0.29% down. Initially, the Loonie welcomed the Ivey Purchasing Managers Index (PMI) data, which reported that Canadian economic activity increased for the sixth straight month in November. The seasonally adjusted index fell to 52.7 from 54.5 in October, but it remains in expansion territory. However, the CAD dimmed by rounds of restrictions used to curb the spread of the novel Covid-19, as well as signs of renewed tensions on the Sino-U.S relationship. It is a quiet day on the economic front, with market participants waiting for the Bank of Canada’s monetary policy decision, tomorrow.


The USD climbed a little higher against the MXN, weakening the Mexican peso by 0.36% during the trading session on Monday and snapping its winning streak from last week. The session was marked by a subdued appetite for riskier assets as tensions between the world’s two largest economies, the United States and China, sparked anew. Domestically, at the start of the week, Mexican President Andres Manuel Lopez Obrador nominated finance ministry official Galia Borja to serve as a new deputy governor of the central bank, replacing one of the most hawkish members of the monetary authority. As widely expected, due to lockdown's impact, the INEGI statistic official agency published Mexico’s gross fixed investment which represents the expenses made in Machinery and equipment of national and imported origin, as well as Construction, the reading showed a decrease in real terms of - 2.9% during September of this year compared to the immediately previous month.


The Chinese yuan was flat against the USD on Monday after media reports said the United States was prepping sanctions on at least a dozen Chinese officials over alleged roles in Beijing’s disqualification of elected opposition legislators in Hong Kong. On the economic front, Chinese November exports surged at their fastest pace (21.1% year-over-year) since February 2018, driven by electronics and medical equipment. Imports increased for a third straight month, while the trade surplus hit a record. Although the figures were positive for CNY, the U.S sanctions capped gains. Earlier today, China's foreign minister said that Beijing is open to restarting its relationship with the US, declaring the two countries are at a "critical historical juncture" after a year of escalating tensions.


The Brazilian real ended up 1.10% higher against the USD while Brazil's stock index, Ibovespa, touched its highest level in more than 10-months on Monday. The BRL has posted strong gains in recent weeks on the back of solid macroeconomic data which showed that Brazilian economic activity is growing at a fast pace. Meanwhile, in Brasília, the Federal Supreme Court (STF) decided by the majority, that the current presidents of the Chamber and the Senate cannot run for re-election in 2021, opening the dispute in both houses. The current president of the Chamber, Rodrigo Maia, is the main articulator of the reforms and the link between government and congress. Markets remain focused on fiscal sustainability and the uncertainties about the approval of measures and structural reforms to guarantee the health of public accounts.


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