Consolidative Moment As Markets Wait For Fresh Developments

Germany's ZEW investor survey captures both the seriousness of the economic consequences of the pandemic's survey but also the optimism that the future is brighter. The current assessment deteriorated to -66.5 in December from -64.3 in November. This was a bit weaker than expected.  On the other hand, the expectations component was stronger than anticipated at 55.0. It was a 39.0 in November. Separately, France reported a larger than expected improvement in the October trade balance.  The shortfall of 4.85 billion euros was the smallest trade deficit since March. In the first ten months of the year, the average monthly deficit has been 5.85 billion euros. In the same period last year, the average trade shortfall was 4.89 billion euros. Germany reports its October trade figures tomorrow. Its average trade surplus through September was 14.3 billion euros (compared with 18.8 billion for the year-ago period).  

The euro slipped lower in the past two sessions but is slightly firmer today in a narrow range. It dipped briefly below $1.21 and has been capped in front of $1.2135. There is an expiring option for 1.7 billion euro at $1.21 and another for about 520 million euros at $1.2150. The consolidative tone looks set to continue. Initial support is seen near $1.2080 and then $1.2040. The $1.2165-$1.2180 range may provide the near-term cap. Sterling covered a two-cent range yesterday (~$1.3325-$1.3435) and is considerably calmer today, trading in about a half a cent range (~$1.3325-$1.3380). It is stuck in a narrow range around $1.3350.  The euro is firm against sterling near GBP0.9075, having seen GBP0.9140 yesterday. Here too, consolidation is likely as fresh developments are awaited.   

America

Hope that an appropriations bill and measures can be combined and approved by the end of the week is fading. It was a tall order in any event, though it has seemed as if the tightness of the Georgia Senate races, the dramatic spread of the virus, and the disappointing employment report would have made a deal more likely. At the same time, President-elect Biden's endorsements of the bipartisan plan made Pelosi and Schumer more accommodative. Although bipartisan support for a $900 billion stimulus bill has grown, Senate GOP leader McConnell has yet to throw his support behind it, still seemingly preferring his previous $500 billion offer. Yet, disagreements about the funding for the border wall, bioenergy rules, and environmental protection, among other things, are proving nearly intractable. Several obstacles remain, including President Trump's threat to veto the $740 billion defense bill if it does not eliminate social media companies' protections for what is posted on their platforms. A short-term continuing resolution for the omnibus appropriations bill seems increasingly likely. However, there is no guarantee that an agreement will be reached, and the continued negotiations may further complicate the outlook for next week's FOMC meeting.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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