A positive risk on session overnight dampened late in the session by lowering vaccine rollout expectations

A positive risk on session overnight dampened late in the session by lowering vaccine rollout expectations       

• USD: A bipartisan fiscal stimulus deal looking more likely in US - Citi analysts’ base case for a ~$1trln fiscal package agreed ahead of December 11th is looking increasingly likely with House Speaker Pelosi and Senate Minority Leader Schumer overnight indicating Democrats would accept the ~$900bln stimulus proposal as a basis for negotiation. Citi analysts though expect this deal, if agreed, to be the last major tranche of COVID-related fiscal stimulus. 

• GBP: Brexit talks back on track despite France warning of a possible veto - Sources overnight say the French envoy has warned chief Brexit negotiator Michel Barnier of a veto on a Brexit deal if they are unhappy with the terms. BBC headlines though suggest one ambassador thinks there is hope an agreement could be finalized on Friday, with another diplomatic source confirming a deal by the end of this week remains a distinct possibility. Fishing rights remains a stumbling block with the issue being whether the UK government makes concessions sufficient to secure an agreement – Citi analysts continue to think a deal is more likely but the deadline could extend to the EU Summit on December 10-11 or EU Parliament’s last plenary session on December 14.    

• USD: Risk sentiment is dampened late in the overnight session as Bloomberg reports that a major vaccine manufacturer  has cut its rollout target on the back of supply chain related obstacles. The company expects to ship half of the originally announced shipments before year's end, but claims that it still expects to release more than one billion doses through 2021. 

OPEC+ decides to return supply to market gradually; Citi analysts revise up 2021, revise down 2022+

• OIL: OPEC+ comes to a deal on Thursday to return oil supply more carefully to the market, after some pre-meeting jitters. The OPEC+ deal calls for a small step up in January of 500-k b/d with further adjustments pending monthly assessments. Citi analysts expect a continued gradual easing beyond that and revise up 1Q’21 and 2Q’21 forecasts slightly (to USD51 and 53 for Brent and USD48 and 50 for WTI), and 2022+ down slightly (USD55-57 for Brent and USD51-53 for WTI). The team sees affirmation of a coherent OPEC+ monthly monitoring as supporting financial flows, which were already recently buoyed from low levels by vaccine news and ongoing market tightness as seen by Brent flirting with backwardation. 2022 onwards, Citi sees stronger OPEC+ supply, including out of UAE, as putting slight downward pressure on prices.   

Data releases overnight – US ISM and Australian trade surplus            

• USD: US ISM Services suggests continued growth despite headwinds - US ISM Services index falls to 55.9 in November though closely in line with consensus. The business activity index declines to 58.0 while new orders fall to 57.2 but the employment index is up to 51.5. Despite the modest pull-back in ISM services in November, the overall index and its key components remain elevated. In particular, the employment index is up once again, remaining above 50 for the last three months and reinforcing Citi analysts’ view of 600k jobs added in November (data due tonight).      

• AUD: Burgeoning iron-ore exports buttress the Australian trade balance despite the Australia – China trade spat - the monthly trade surplus widens in October to $AU7.5bn (Citi; $AU6.5bn, consensus; $AU5.8bn), up from AU$5.8bn in September, recording he 34th consecutive monthly trade surplus with exports rising 5.4% thanks to iron-ore, which is up by 4.1% in October. Iron-ore exports are up over 40% in yearly terms and demand for iron-ore should help offset trade risks for other commodities - China has imposed various tariffs and trade restrictions on Australian agricultural goods recently and Citi analysts’ baseline assumption is that exports to China, excluding iron-ore, will likely drop by 10%. The team does not expect any restrictions on iron-ore because 50% of Chinese iron ore demand needs to be met by Australia. Given strong demand for iron-ore, total merchandise trade to China could be largely unchanged over the coming year.     

Data releases tonight       

• USD: November Nonfarm Payrolls – Citi: 600k, median: 500k, prior: 638k; Private Payrolls – Citi: 700k, median: 590k, prior: 906k; Manufacturing Payrolls – Citi: 50k, median: 47k, prior: 38k; Average Hourly Earnings MoM – Citi: 0.1%, median: 0.1%, prior: 0.1%; Average Hourly Earnings YoY – Citi: 4.2%, median: 4.2%, prior: 4.5%; Unemployment Rate – Citi: 6.8%, median: 6.8%, prior: 6.9% - Another solid month of 600k job gains in November likely, closely in line with the pace of employment increases over the last two months with further job increases consistent with persistent declines in continuing jobless claims over recent weeks. Average hourly earnings should rise 0.1%MoM but fall to 4.2%YoY in November, a still higher level of earnings than pre-COVID. The relatively higher level of average hourly earnings likely reflects higher wage employees returning to work first or could be a reflection of possible wage increases for some lower-wage workers. The unemployment rate should decline modestly to 6.8% from 6.9% in October, partly a reflection of a still-subdued labor force participation rate and a stronger increase in employment in the household survey that determines unemployment rate.        

• CAD: Canada’s Net Change in Employment (November) – Citi: 10k, median: 83.6k; Unemployment Rate – Citi: 8.9%, prior: 8.9%; Hourly Wage Rate Permanent Employees – Citi: 5.6%, prior: 5.2% - Citi analysts expect a modest 10k increase in employment in November, although with substantial uncertainty and roughly balanced risks of a stronger increase in employment or a net decline. The team also expects much more muted job gains overall in the coming months given that employment in many industries such as education and manufacturing has already returned to pre-COVID levels. But the already-substantial labor market recovery in 2020 (80% through October) suggests pre-pandemic employment levels could be re-attained at some point in 2021 or early 2022.      

This is an extract from the Daily Currency Update, dated December 4, 2020. Please approach a Citigold Relationship Manager if you would like more information.