Friday, 4 December, 2020 [email protected]

Global Economics & Markets Research Email: [email protected] URL: www.uob.com.sg/research

Markets Overview

HIGHLIGHTS AHEAD

. Key data release will be the US nonfarm report for November, which is expected to see 500,000 job gains from the 638,000 increase in October, while unemployment rate is seen easing to 6.8% (from 6.9% in October). US wage growth is expected at 0.1% m/m, 4.2% y/y (from 0.1% m/m, +4.5% y/y in October). US factory orders for October is expected to slow to +0.8% m/m compared to 1.1% in Sep.

. Philippines and Thailand will be releasing their November CPI today. In Thailand, headline CPI has likely remained in deflation of around -0.5%y/y while core CPI is forecast to be stable at +0.2% y/y in November. The contraction in Singapore’s retail sales is expected to have narrowed to -8.3% y/y in October from -10.8% y/y in September. Thailand commemorates the King’s Father birthday on Saturday (5 Dec) with the holiday observed on Monday (7 Dec).

CENTRAL BANK OUTLOOK

. The US Senate confirmed on Thursday to serve on the Board, but the status of President ’s second nominee, Judy Shelton, remained in limbo amid opposition from Democrats and some Republicans. Senators voted 48-47 to put Waller on the US Fed, concluding a confirmation process that had been dragged out for months because of controversy surrounding Shelton, who was nominated by Trump at the same time. Waller, 61, becomes the fourth Trump pick to join the seven-member Fed board. He is viewed as a policy dove who will probably give full backing to the central bank’s projection to hold interest rates near zero to support the US economy during the coronavirus pandemic.

. Reserve Bank of India (SGT 2.15pm) is widely expected to be on hold at 4.00% today. Despite the economic headwinds, high domestic inflation may limit RBI’s ability to cut interest rate in the near-term even though the central bank has signaled prospect of more policy accommodation. Headline CPI rose to 7.61% y/y in October, having registered above the 2-6% target range in nine out of ten months.

FX

. The US dollar plunged to its weakest level in more than 2-1/2 years on Thursday, amid signs of progress towards a US fiscal stimulus package and optimism about COVID-19 vaccines. The US dollar index (DXY) retreated for the third day in a row, easing 0.44% to 90.714 on Thursday and looks set for its third weekly decline. The DXY is hovering at the lowest level since April 2018.

. The pound led gains among G10 currency peers, but pared its advance from a one-year high after conflicting signs on whether a historic Brexit trade deal will emerge, while the euro moved to a new 31-month high. Sterling rose as much as 1% to 1.3500 against the USD, the highest level since December 2019, before retreating to 1.3453 late Thursday. EUR/USD advanced 0.2% to 1.2142 for the third straight day of gains, lifting the single currency to its highest level since April 2018. USD/JPY came off 0.5% to 103.95 late Thursday, for the first decline in 4 sessions. AUD/USD climbed 0.3% to 0.7440, reaching its highest since August 2018 while NZD/USD was little changed at 0.7072 on Thursday.

. In Asia, SGD, TWD and KRW were up around 0.3% to close at 1.3345, 28.53 and 1,096.90 against the dollar respectively on Thursday. CNH initially fell but recovered and traded to a high of 6.5254 late-Thursday and ended at 6.5356 (+0.12%).

. USD/SGD touched a new low for the year at 1.3323 before closing at 1.3345 on Thursday.

. The SGD NEER is trading at 0.26% below the mid-point this morning. On the SGD NEER, mid-point to -0.5% from the mid-point implies USD/SGD range of 1.3305-1.3372 based on the current FX levels.

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EQUITIES

. US equity markets turned a bit cautious on Thursday after a report said Pfizer is dialing back its coronavirus vaccine rollout plan for this year due to supply chain issues, even after US weekly jobless claims dropped for the first time in 3 weeks to 712,000 in late November, from 787,000 in the prior week, while continuing claims fell to 5.52 million from 6.09 million.

. The S&P 500 eased marginally in a late-day sell-off, dipping just 2.29 points, or less than 0.1%, to 3,666.72 on Thursday, after hitting an all-time high earlier in the session and stepping back from a record close for a second day in a row on Wednesday. The Dow Jones Industrial Average gained 85.73 points, or 0.3%, to 29,969.52. Earlier in the day, the Dow rose more than 200 points. The Nasdaq Composite edged up 0.2%, or 27.82 points, to 12,377.18 for a new record high.

. Asian equity indexes mostly ended higher on Thursday with KL Composite Index (+1.85%), Philippines Stock Exchange Index (+1.60%) and Thailand SET (+1.44%) leading the advance. The MSCI Asia ex-Japan index recovered for the third straight day on Thursday with gains of 0.78%, and is now marginally higher for the week.

. Sentiment may turn more cautious today on news of supply bottleneck for COVID-19 vaccines while higher infection rates are forcing economies into tightening their social-distancing measures.

US TREASURIES/BONDS

. US Treasury yields were broadly lower on Thursday, as investors focused on the prospects for another stimulus bill from Congress to combat the impact of the coronavirus pandemic and ahead of the Federal government funding deadline on 11 December. The 10-year Treasury note yield fell 2.9bp to 0.919%, while the 2-year note yield edged 1.1 basis point own to 0.153%. The 30-year bond yield slipped 3.9 basis points to 1.666%.

. The S&P Pan Asian Government Bond Index ended marginally lower by 0.04% on Thursday.

. In Asia, yields fell the most in Thailand with the 2-year and 10-year yields down 1.8 bps and 2.3 bps to 0.49% and 1.30% respectively. Meanwhile, 2-year yields rose the most in India by 2.7 bps to 3.95% and 10-year yields rose the most in Taiwan by 5.0 bps to 0.29% on Thursday.

. On Asia’s government bond auction calendar today, India will be offering 3, 15 and 30 -year bonds.

COMMODITIES

. Crude oil prices reacted positively to the news from oil producers group agreeing to a compromise deal to gradually taper output curbs after a week of negotiations. Brent crude futures traded 1.4% higher at $48.92 per barrel, while US West Texas Intermediate (WTI) futures settled 36 cents, or 0.8%, higher at $45.64 per barrel.

. The Organization of the Petroleum Exporting Countries (OPEC) and Russia, a group known as OPEC+, announced late Thursday that to increase production by 500,000 barrels per day beginning in January, i.e. cutting production by 7.2 million barrels per day (bpd), or 7% of global demand from January, compared with current cuts of 7.7 million bpd.

. Gold firmed on Thursday as the US dollar fell and investors focused on the possibility of an eventual breakthrough in negotiations over a fresh US coronavirus aid package. Spot gold gained 0.4% to $1,838.83/oz. It earlier hit its highest since 23 Nov at $1,843.80. Reuters reported that a bipartisan, $908 billion coronavirus aid plan is gaining momentum in the US Congress on Thursday as conservative lawmakers expressed their support and Senate and House of Representatives leaders huddled, though it is unclear how far beyond $500 billion in spending Senate Majority Leader Mitch McConnell would agree to after months of insisting that anything approaching $1 trillion was unnecessary.

ECONOMIC NEWS & DATA

. President-elect said he would ask all Americans to wear a mask to prevent the spread of the coronavirus for the first 100 days of his administration as well as issue a “standing order” requiring face coverings in federal buildings and on all interstate transportation. Biden also told CNN in an interview on Thursday that he had spoken to Dr Anthony Fauci and asked him to stay on as the government’s top infectious disease expert in the Biden administration.

. The US House of Representatives passed a law to kick Chinese companies off US stock exchanges if they do not fully comply with the country’s auditing rules, giving President Donald Trump one more tool to threaten Beijing with before leaving office. The measure passed the House by unanimous voice vote, after passing the Senate unanimously in May, sending it to Trump, who the White House said is expected to sign it into law. “The Holding Foreign Companies Accountable Act” bars securities of foreign companies from being listed on any US exchange if they have failed to comply with the US Public Accounting Oversight Board’s audits for three years in a row.

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. The head of the US Centers for Disease Control and Prevention (CDC) warned on Wednesday the COVID-19 pandemic, still raging with unprecedented fury nationwide, will pose the country’s grimmest health crisis yet over the next few months, before vaccines become widely available. CDC Director Dr Robert Redfield urged stricter adherence to safety precautions such as wearing face coverings, social distancing and good hand hygiene to slow the spread of a highly contagious respiratory virus now claiming well over 2,000 American lives a day. Besides the monumental loss of life, Redfield said, the country faces the prospect of a healthcare system strained to the point of collapse. The contagion has now reached every corner of the country - with 90% of all hospitals in areas designated as coronavirus “hot zones” - and continues to spread on a much steeper trajectory than any previous wave of the pandemic.

. European Union diplomats said on Thursday they hoped a Brexit trade deal with Britain could be agreed by Friday or at the weekend, and EU officials said negotiators were likely to review progress in the next two days. A British minister said he believed “good progress” was being made at talks but cautioned that London would not sign up to a deal that was not in its interest. The suggestion by several officials in the EU that the negotiators will soon review overall progress is widely seen as a positive sign after weeks of impasse over three main issues -- fisheries, economic fair play and settling disputes. Three EU diplomats said they hoped the negotiators - the EU’s Michel Barnier and Britain’s David Frost - could seal a deal as soon as on Friday or at the weekend, signalling the next 24-48 hours will be crucial, Reuters reported on Thursday.

. The European Union urged countries to reinforce their healthcare systems and coordinate restrictions on social gatherings ahead of the Christmas holiday season, to avoid a resurgence of COVID-19 cases. It urged governments to keep up measures on physical distancing and mask wearing over the Christmas holidays, and require people to self-isolate before and after social gatherings if rules on meetings are temporarily loosened during the festive season. This self-quarantine should be for “at least seven” days, it said. Countries should consider banning mass gatherings, while there should be “clear criteria” for small events.

. Euro zone business activity contracted last month as governments across the bloc re-imposed strict lockdowns to quell a second wave of coronavirus infections, according to the latest survey. IHS Markit’s composite PMI sank to 45.3 in November from October’s 50.0, but was marginally above an earlier flash reading of 45.1. The bloc's services PMI sank to 41.7 from October’s 46.9, marking its third month below the break-even mark. That was its lowest reading since May, when the first wave of the virus was sweeping across Europe.

. Euro zone retail sales rallied more than expected in October, driven by a surge in online shopping as a second wave of COVID- 19 infections arrived. Eurostat said retail sales rose 1.5% month-on-month in October (+4.3% year-on-year), after a 1.7% m/m monthly slump in September. The outcome was well ahead of market expectation of +0.8% m/m and +2.7% y/y. Eurostat said internet and mail order sales jumped 6.1% m/m and surged 28.5% y/y, offsetting a 2.8% m/m and 14.0% y/y declines in sales of clothes and shoes from shops. Also sales of petrol fell sharply by 3.7% m/m and 9.6% y/y, a steeper fall than in the previous month, as fewer people travelled because of the pandemic.

. Germany’s success in dealing with the first wave of the coronavirus pandemic in March and April had led many people to doubt the virus’s severity or even its existence, the head of Germany’s public health agency said on Thursday. Describing the result as a so-called “prevention paradox”, Lothar Wieler, head of the Robert Koch Institute for Infectious Diseases (RKI), said this meant many were now failing to take social distancing and quarantine seriously enough, leading to the high level of cases Germany is now seeing.

. Italy reported a record number of daily coronavirus deaths Thursday, surpassing March’s peak, as the government laid out a plan to restrict movements over the coming holiday season. New fatalities linked to the pandemic hit 993, ahead of the previous peak of 969 on 27 March. Some 23,225 new cases were recorded, down 20% from the same day last week.

. Greece has extended to 14 December a nationwide lockdown imposed last month to contain a surge in new coronavirus cases, government spokesman Stelios Petsas said on Thursday. The lockdown, the country’s second since the pandemic began, was extended by a week.

. Caixin China services PMI rose sharply to 57.8 in November from 56.8 in October, fueling optimism toward China’s economic recovery in 4Q20. The index is at its highest since June 2020 and mirrored a stronger performance in the official services PMI.

. Markit PMI index for Hong Kong rose 0.3 points to 50.1 in November, its first expansion reading since March 2018 (defined as >50) but new surge in infection has again dampened outlook for the economy.

. Conversely, the whole economy Markit PMI index for Singapore slipped to 46.7 in November from 48.6 in October. Meanwhile, the manufacturing and the electronics sector index issued by the Singapore Institute of Purchasing and Materials Management (SIPMM) pointed to continued expansion in the manufacturing sector with the manufacturing and electronics PMI at 50.4 (Oct: 50.5) and 51.1 (Oct: 51.0) respectively.

. Singapore Ministry of Manpower said that the resident employment rate for those aged 25 to 64 is at 80.3%, slightly lower compared to 80.8% last June but is close to the 5-year average of 80.5%. Meanwhile, the overall unemployment rate and citizen unemployment rate remained unchanged in October, at 3.6% and 4.9% respectively. Despite relatively stable employment, the real median income fell 0.3% compared to an increase of 2.2% in 2019.

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