Weekly Outlook: Dec 07 — Dec 11: Brexit and US Stimulus in Focus; BoC and ECB Meet

JFD Brokers
7 min readDec 7, 2020


This week is likely to be crucial for the pound as it may be the last chance for the EU and the UK to strike a trade deal ahead of the December 31st Brexit deadline. In the US, the spotlight is likely to fall on discussions around a new coronavirus-aid bill, with Friday being the deadline for the Congress to pass a budget in order to avoid a government shutdown. Elsewhere, the BoC and the ECB decide on monetary policy on Wednesday and Thursday respectively.

Monday is a very light day in terms of economic data releases, with no top-tier items on the agenda. During the Asian morning, we already got China’s trade balance for November, with the nation’s surplus coming in higher than anticipated, while later in the day, we have Canada’s Ivey PMI for the month, which is expected to have declined to 51.5 from 54.5.

In our view, market participants are likely to keep their gaze mostly locked on developments surrounding the political landscape. In the UK, the Parliament will vote on the Internal Market Bill, under which the government seeks to alter parts of the withdrawal agreement. Something like that will anger the EU and diminish any chances for the two sides reaching common ground on trade. In other words, a no-deal Brexit will become a more realistic scenario and the pound is likely to fall off the cliff. For the pound to trade higher, we need to see the Parliament rejecting the bill and headlines suggesting that the two sides have found some sort of common ground over their differences. On Thursday, the EU summit begins and this will be the last before the end of the year. Thereby, this will be the last official chance for the two sides to seal a deal, which means that they will have to sort out their differences beforehand.

In the US, this week, the spotlight is likely to fall on discussions around a new coronavirus-aid bill. Last week, a USD 908bn bipartisan plan gained momentum in the Congress, with conservative lawmakers expressing their support. A couple of weeks ago, a bill before year-end looked nearly impossible, but now, news and headlines point otherwise. However, it remains unclear whether Senate Majority Leader Mitch McConnell will agree to such a plan, as he has been pushing to keep relief spending near USD 500bn. Friday is the deadline for the Congress to pass a USD 1.4trln budget or risk shutting down the government, and it remains to be seen whether they will do so, and how much of this amount, if any, will be the coronavirus package. At this point, we need to note that the Congress could approve a spending resolution without including a coronavirus-aid bill, something that may still come as a disappointment to market participants. For equities and risk-linked assets to continue marching north, we need to see lawmakers agreeing in both a spending budget, as well as a coronavirus-relief package.

Now back to the data, on Tuesday, during the Asian morning, Japan’s second estimate of Q3 GDP is due to be released and it is expected to confirm that the Japanese economy has rebounded 5.0% qoq after tumbling 8.2% in Q2. In Europe, we have the German ZEW survey for December, Eurozone’s employment change for Q3, and the bloc’s final GDP estimate for Q3. With regards to the ZEW survey, the current conditions index is expected to have declined to -66.0 from -64.3, while the economic sentiment one is forecast to have risen to 46.0 from 39.0. Eurozone’s employment change is forecast to show that the economy has lost 2.8% qoq jobs, after gaining 0.9% in Q2. The final GDP print is just expected to confirm its second estimate of 12.6% qoq.

On Wednesday, the biggest event on the agenda is the BoC monetary policy gathering. However, as we noted last week, we don’t expect this Bank to rock the boat this time around. At its latest meeting, the BoC kept interest rates unchanged and scaled back its QE program, noting that the economic outlook has evolved largely as anticipated in the July Monetary Policy Report. Since then, inflation has accelerated and economic growth for Q3 has rebounded strongly. What’s more, data on Friday, showed that the unemployment rate fell more than expected, with the economy adding more jobs than the market has forecasted.

With all that in mind, someone could argue that policymakers could scale back even more their QE program, but bearing in mind that they did so just at the prior meeting, we don’t expect any action this week. We may get a somewhat more sanguine language in the meeting statement, which could prove positive for the Canadian dollar. Having said that, we believe that, as a commodity-linked currency, the Loonie is likely to stay mainly driven by the broader market sentiment and especially by movements in oil prices. Remember that, last week, when oil prices spiked higher on the OPEC’s decision, the Loonie gained as well.

As for Wednesday’s data releases, during the Asian morning, China’s CPI and PPI for November are coming out. The CPI rate is expected to have risen to +0.8% yoy from +0.5%, while the PPI one is anticipated to have inched up to -1.8% yoy from -2.1%. In Europe, we have Germany’s trade balance for October, while in the US, we get the JOLTs job openings for the same month.

On Thursday, the central bank torch will be passed to the ECB. When they last met, policymakers of this Bank said that in December, the new macroeconomic projections will allow a thorough reassessment of the economic outlook and that they will recalibrate their instruments as appropriate. In other words, they hinted that they are very likely to expand their stimulative efforts at this gathering. Expectations are for a EUR 500bn expansion of their QE purchases and thus, if this is the case, the euro is unlikely to move much.

For the common currency to move higher, the Bank has to disappoint, namely to deliver less stimulus than what the market currently anticipates. That said, with the euro already well above 1.20 against its US counterpart and inflation in the bloc staying in negative waters, the last thing the ECB would like is further appreciation of its currency. Therefore, we see more chances for policymakers to overdeliver than to underdeliver. We believe that there is decent chance for expanding QE by more than expected and also talking down the euro, either through the meeting statement, or President Lagarde’s post-decision press conference.

In the UK, we have the monthly GDP for October, alongside the industrial and manufacturing production rates for the month. The nation’s trade balance for the same month is also due to be released. No forecast is available for the GDP, while the industrial and manufacturing production yoy rates are forecast to have declined to -6.4% and -8.4%, from -6.3% and -7.9% respectively. The nation’s trade deficit is expected to have widened to GBP 9.60bn from 9.35bn.

Later in the day, the US CPIs for November are coming out. Both the headline and core rates are expected to have ticked down to +1.1% yoy and +1.5% yoy, from +1.2% and +1.6% respectively. With the Fed noting that it will allow inflation to overshoot its 2% target for some time, so that inflation averages 2% over time, well-below-target readings may increase the chances for the Fed to expand its stimulus efforts at its upcoming gathering.

Finally, on Friday, Germany’s final CPIs for November are expected to confirm their preliminary estimates, while in the US, the preliminary UoM consumer sentiment index for December is forecast to have declined fractionally, to 76.5 from 76.9.


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