MNI US Open: Timid Surveys, Confident Markets

EXECUTIVE SUMMARY:

• EQUITIES AND OIL HIGHER, DOLLAR WEAKER IN OVERNIGHT TRADE
• FRENCH, GERMAN BUSINESS CLIMATES WEAKEN IN NOV. AS LOCKDOWNS TAKE TOLL
• E.C.B. WARNS OF ECONOMIC HIT IF PANDEMIC SUPPORT IS PHASED OUT
• GERMANY EXPECTS SOLUTION ON E.U. BUDGET ROW WITHIN DAYS

Fig.1: Lockdowns Weigh On Business Climate

BBG, MNI

NEWS:

GERMAN DATA: The Ifo business climate indicator fell to 90.7 in Nov, coming in slightly stronger than markets expected (BBG: 90.2)

• Both current conditions and expectations eased in Nov amid the second wave ofCovid-19 which interrupted the German economy's recovery.
• Expectations led the decline as companies are significantly more pessimistic, with falls seen in every sector.
• Manufacturing held up well in Nov with current conditions up markedly as order rose, but expectations for the coming months cooled.
• The service sector took the largest hit in Nov, falling back in negative territory for the first time since June.* Both the assessment of the current conditions and expectations decreased with hospitality and hotels seeing the largest decline.
• Trade business climate worsened as well, while it eased to a slower extent in the construction sector.

• Retail trade and service business climate took the largest hit of the newly introduced second lockdown with retail trade sentiment plummeting 23pt to 72,while service sector business confidence dropped 12pt to 77.
• Both indicators declined to their lowest levels since May
• Sub-sectors particularly affected by the lockdown such as accommodation and catering, firms specialized retail trade, automobile trade and repair saw the largest drops, while food retail trade in food offset some these falls.
• Manufacturing sentiment eased as well in Nov, however the indicator only fell by 2pt to a three-month low of 92.
• Employment climate eased further in Nov, falling 6pt to 83 and registering far below the pre-crisis level of 105.
• Employment prospects declined markedly in the retail trade and service sector and eased slightly in the industrial sector, while construction saw employment prospects holding up.

EUROZONE/E.C.B. (RTRS): The European Central Bank warned on Tuesday of painful "cliff effects" for households and companies if governments and regulators phase out the economic support they have provided to cushion the impact of the coronavirus pandemic. The ECB estimates the euro zone's five largest economies will lose 2% to 4% of their gross domestic product if these measures, ranging from loan guarantees and moratoria to short-time working schemes, are left to expire by the end of 2021."The simultaneous termination of policy measures could trigger a protracted downward shift in the recovery path," the ECB said. "Such cliff-edge effects would be concentrated in the first half of 2021."

BREXIT/BANKS (BBG): Goldman Sachs Group Inc. is planning a European stock trading platform to ensure its clients can still buy and sell shares even without a post-Brexit agreement to allow dealing in London. The Wall Street bank has applied to French regulators to start a Paris-based trading venue called SIGMA X Europe, according to the company. It intends to open before Jan. 4 subject to regulatory approvals.

FOREX: Citi's prelim month-end rebalancing model indicates an above average USD sell signal into Monday 30th November. They write that this month's USD sell signal is almost entirely driven by foreigners' needs to hedge gains in US equities. The contribution to the USD sell signal from US fixed income hedges is only adding marginally this month, while US-based investors will to a lesser degree be USD buyers to hedge gains in their foreign assets.DATA:

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