MNI ASIA OPEN - Another Day Without a Brexit Deal

ASIA

JAPAN PRESS: Suga To Push Back Snap Election Due To COVID-19: Nikkei

Nikkei Asia reporting that Prime Minister Yoshihide Suga is unlikely to call a snap general election in the early stages of 2021, as the country battles against a third wave of COVID-19 infections.

CANADA

Canada Housing Agency Flags Downside Risks (MNI)

Canada's federal housing agency warned Friday that the overstretched markets seen before the pandemic may return, undercutting what has been a resilient sector aided by government relief in the early months of the pandemic.

EUROPE

SPAIN: Gov't Gets Regionalist Support To Drag 2021 Budget Over The Line

Thursday it was announced that Prime Minister Pedro Sanchez had secured a deal with three regionalist parties to get his minority gov'ts 2021 budget over the line in the Congress of Deputies. Spain has operated with the same rolled-over budget since 2018 due to a series of minority administrations. The inability to pass a budget was seen as a major concern given the huge pressure on public services and the economy as a whole during the COVID-19 crisis.

UK

UK RPI Change To Rejuvenate IL Market: DMO Head (MNI)

The UK's index-linked government bond market should be revitalised rather than killed off following the announced realignment in 2030 of the main measures of consumer price inflation, Robert Stheeman, head of the Debt Management Office, told MNI.

In 2030, the UK Statistics Authority (UKSA) will abruptly bring the RPI index into line with that of CPIH, when the two matched indices could still run side-by-side, allowing issuance of the current RPI-linked bonds to continue.

EU/UK Confident Agreement On NI Protocol Can Be Reached: RTE

Selected comments from RTE's Tony Connelly's latest lengthy tweet thread (almost a full blog post) on talks surrounding the implementation of the Northern Ireland protocol, which is part of the Brexit Withdrawal Agreement that governs the situation between the EU, Northern Ireland, and the rest of the UK following the end of the transition period.

MNI Riksbank Review

• Yesterday the Riksbank announced a SEK200bln extension to QE. We had expected an increase to QE but the market had been split. In the SEB survey, 45% expected more QE to be announced this week while only 7/12 sell-side notes we read ahead of the meeting had expected an extension to QE at this meeting.
• The Riksbank surprised the market further by announcing an even larger QE programme than most who expected a QE extension looked for and front-loading purchases – bringing Q1-21 asset purchases back in line with those seen in the height of the first wave of Q2-20 and Q3-20.
• We thought that there would be three main reasons the Riksbank would act. First, concerns about growth and permanent scarring to the economy, second concerns about potential currency appreciation (in particular triggered by a potentially very dovish ECB meeting in December) and third wider concerns about maintaining the credibility of the inflation target. The Riksbank referred to all of these in its press release and MPR.

For the full document click here.

US TSYS SUMMARY: Cash Curve Flattens In Holiday-Shortened Session

Treasuries traded within a 4-tick range for almost the entire holiday-shortened Friday session, with no macro or headline drivers. A late rally brought Tsys close to session highs as we headed into the early close.

• Bull flattening in the curve - largely reflecting catch-up from the Thursday cash holiday. This as equities continued to edge higher in orderly fashion and the dollar weakened.
• The 2-Yr yield is down 0.6bps at 0.1524%, 5-Yr is down 2.5bps at 0.3687%, 10-Yr is down 3.6bps at 0.8455%, and 30-Yr is down 4.5bps at 1.5784%.
• Dec 10-Yr futures (TY) up 7.5/32 at 138-16 (L: 138-07.5 / H: 138-17.5). Note TYH1 has taken the volume lead on actives over TYZ0, with the roll basically complete ahead of Monday's first notice.
• Data resumes on Monday with MNI Chicago PMI, though no scheduled Fed speakers or Tsy supply (there are bill auctions).

FOREX: Sterling Sours As Another Day Passes With No Progress

After starting the session holding its ground, GBP sank into the London close as markets looked skeptically at the odds of a near-term breakthrough in ongoing Brexit negotiations. With Barnier set to meet fishing minister earlier in the session, hopes were high that some sort of progress could be made before the weekend - but these hopes were soon dashed as reports suggested the UK had dismissed out of hand the EU's latest proposal on fisheries. GBP/USD briefly sank below the $1.33 handle, with GBP underperforming all others in G10.

Elsewhere, partial closures in the US sapped volumes and liquidity out of markets, prompting a general pullback in the USD, with antipodean currencies the main beneficiaries. AUD, NZD and EUR were the strongest on Friday, GBP, USD and CHF the weakest.

Focus in the coming week turns to MNI Chicago PMI, November job reports from the US & Canada and the RBA rate decision.