Johnson's Dinner, China Deflation, ECB and Oil

10 dic 2020

Yesterday was rich in all sorts of events. The Bank of Canada decided to leave the monetary policy parameters unchanged (as expected). Boris Johnson flew to Brussels for dinner with the head of the European Commission in a last-ditch attempt to break the Brexit impasse. Dinner ended without agreement. But negotiations will continue. The current deadline is Sunday. According to the negotiators, it is at this time that the final decision should be made whether a deal can be reached or not.

Meanwhile, Honda was forced to suspend production at a large plant in England due to delayed parts supplies. That is, the British industry is at risk of disruptions since January. Without a deal, British automakers could lose $ 62.4 billion over the next five years.
Pandemic fronts were traditionally ambiguous. On the one hand, the pandemic does not even think about fading away, and in the United States, the medical system is on the verge of collapse. But on the other hand, the FDA is due to approve the Pfizer vaccine today, and China has reported 86% effectiveness of their vaccine. But even the vaccine news background was clouded yesterday by information that UK health regulators warned that allergy sufferers should not take the vaccine developed by Pfizer and BioNTech after two UK health workers showed an allergic reaction to the drug after being vaccinated in the beginning of the week.

And more news from China. The Celestial Empire reported a sharp drop in inflation (at the end of November consumer prices declined by 0.5%). Given that the markets are expecting the Central Bank of China to roll back stimulus, the news was somewhat puzzling. But when an explanation was found in the form of a sharp decline in pork prices, everyone calmed down a little and decided that deflation was a temporary phenomenon and is not a sign of systemic problems in the Chinese economy.

The oil market received mild shock therapy yesterday. Oil reserves in the United States, according to official data, increased by 15.19 million barrels. Once again, more than 15 million barrels (!). Despite the fact that analysts had expected a decline of 1.42 million barrels. The difference is definitely shocking and reminds of the fact that in conditions of lockdowns, the demand for oil tends to decline. In our opinion, yesterday's drop in oil prices is just the beginning.

Today promises to be extremely busy - the ECB meeting, statistics on GDP and industrial production in the UK, consumer inflation and jobless claims in the US, the FDA approval of the Pfizer vaccine we already mentioned above, as well as news from the Brexit and US stimulus fields.