Macroeconomics: The Day Ahead – 11 November 2020
Good Morning: The Long & the Short of it and The Bigger Picture
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
- No major data on Veterans’ Day leaves focus on another rash of central bank speakers and seesaw / whipsaw market dynamics; OPEC oil market port, Alibaba ‘Singles Day’
- ECB forum on central banking likely to offer usual policy pledges and outlook risks analysis, but only papering over factual impotence
- Charts: Brent Crude Curve change; Alibaba & Tencent; US 2/10 & 5/30 yr spreads
Outside of the Christmas/New Year & Easter holiday lull, it is rare that there is no G7 data of any significance, but that is the case today, though China may still release its monetary & credit aggregates, and tonight will bring Japan’s Private Machinery Orders, while the US bond market closed for Veterans’ Day, and a number of other countries will also be observing (WWI) Armistice Day. Whether some semblance of peace breaks out in markets is very debatable, but the seemingly endless chatter from central bankers over this week finds its focal point at the ECB’s annual Forum on Central Banking over the next two days. The latter will amongst other things have a panel discussion tomorrow with ECB’s Lagarde, Fed’s Powell and BoE’s Bailey discussing current policies. However outside of the already documented commitments to ensure financial stability, keep near zero or negative rates for the foreseeable future, the promise to do ‘whatever is necessary, and the emphasis on very expansive fiscal policy, there is unlikely to be anything new. OPEC follows the EIA yesterday with its monthly Oil market report, with the EIA report downgrading US shale output estimates and cutting its 2021 world oil demand growth estimate by 360K bpd. Be that as it may the overall upward shift and flattening of the Brent futures curve suggests that oil traders are becoming more optimistic on the outlook (see chart). It is also Alibaba’s ‘Singles Day’, which has again smashed previous records, but this appears to have been unable to halt the seemingly relentless selling in the ‘large cap’ tech stocks in China, in heavy volumes as the attached charts highlight, with US tech stocks also seeing considerable pressure yesterday. One other market dynamic to note, has been the renewed steepening of the US Treasury curve in the past 3 trading days, in part a concession for this week’s quarterly refunding, but also reflecting uncertainty about whether Congress will actually be gridlocked, but also a strong element of vaccine related hopes pushing even further back on the idea of the Fed needing to opt for yield curve control.
The simple message from all of this is that even if the euphoria in respect of the vaccine proves to be justified, this will bring another array of uncertainties, above all in terms of how hefty imbalances in positioning within and across sectors and asset classes (fuelled and exacerbated by excess central bank liquidity) are unwound, above all in markets with a very ugly optionality and little depth.
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