It has been another busy week in the EU. It removed a key obstacle to adopting its new budget for 2021-27 and its recovery fund, next generation EU. The breakthrough came as Poland and Hungary agreed to lift the veto on the EU budget following an agreement struck with the current German rotating EU presidency. The deal does not change the ties between pay-outs under the budget and the rule-of-law standards, but sanctions following from breaches cannot be enforced until the European Court of Justice has made an assessment regarding the legality of the new rules. This could cause potential sanctions to be delayed for as much as one year. The approval of the EU budget and recovery fund are essential to support the European economy in 2021 amid a still fragile recovery.
We still do not know whether there will be a Brexit deal or not, as PM Boris Johnson and European Commissioner President Ursula von der Leyen agreed to keep talking at least until Sunday. We are still leaning towards thinking a deal is more likely than not but we have definitely become more worried, as the end of the transition period 31 December 2020 is approaching fast.
In Frankfurt, the ECB recalibrated its policy instruments with a balanced, conservative package but did not change its overall monetary policy stance. It raised the total envelope of the Pandemic Emergency Purchase Programme by EUR500bn to total EUR1,850bn while extending the date ‘at least until March 2022' from the previous guidance of June 2021.
Next week in the euro area, we will be looking out for Flash PMIs. It will be interesting to see whether services PMIs have reached a trough in November and start rising again in December. At least, the expectations components were quite promising in the November PMIs and according to our activity tracker, activity in large parts of the euro area is increasing again, although from low levels. In the US, on the other hand, we see some signs that the increase in new COVID-19 cases is weighing on activity, see more on page 5.
In the UK, the first person was vaccinated with the Pfizer COVID-19 shot this week. Rolling out the vaccine has not been without hiccups, though, as two adverse reactions caused Britain's medicine regulator to advise people with a history of significant allergies not to get the vaccine.
In China, exports were up 20% y/y in November, marking the strongest growth in ten years, indicating that the strong global manufacturing boom is continuing. Next week, we look for more strong readings in industrial production and retail sales as signalled by robust PMI readings lately. The annual Central Economic Work Conference may also start next week. It sets out policy guidelines for the coming year.
In Japan, PM Suga approved a long-awaited stimulus package worth JPY73.6trn (13.7% of GDP). JPY40trn is spending to support the economy, currently struggling with a new round of restrictions after new COVID-19 cases resurged. Next week, we expect the Bank of Japan to extend its emergency lending facilities beyond the current run-off date of 31 March 2021, including the 0.1% interest paid to financial institutions on the amount of loans made under the new facility.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD tests 1.0450 on the road to recovery, PMIs eyed
EUR/USD holds higher ground near 1.0450 in the early European session on Friday, bolstered by renewed US Dollar weakness. The preliminary reading of the HCOB Purchasing Managers Index for January from the Eurozone and Germany now remains in focus.
USD/JPY remains heavy below 155.50 after BoJ's hawkish rate hike
USD/JPY is posting sizeable losses while below 155.50 in early Europe on Friday. The pair remains heavy after the Bank of Japan's rate hike to 0.50%. Higher inflation forecasts by the BoJ signals further rate hikes in the offing, lending support to the Japanese Yen ahead of Governor Ueda's presser.
Gold price bulls retain control near multi-month peak amid Fed rate cut bets
Gold price catches fresh bids on Friday and builds on over a one-month-old uptrend. Worries about a fresh wave of global trade wars underpin the safe-haven commodity. Bets for more Fed rate cuts weigh on the USD and further benefit the XAU/USD pair.
Ripple's XRP faces risk of 20% drawdown as short-term holders show signs of weakness
XRP investors realized over $500 million in profits in the past 48 hours. Short-term holders are responsible for most of the selling activity following CME's clarification on XRP futures.
Federal Reserve set for an extended pause
After 100bp of rate cuts the Fed has signalled it needs evidence of economic weakness and more subdued inflation prints to justify further policy loosening. President Trump’s low tax, light-touch regulation policies should be good news for growth.
Trusted Broker Reviews for Smarter Trading
VERIFIED Discover in-depth reviews of reliable brokers. Compare features like spreads, leverage, and platforms. Find the perfect fit for your trading style, from CFDs to Forex pairs like EUR/USD and Gold.