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Daily Briefing: Reflation!

EconomyDec 03, 2020 08:20
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By Sujata Rao

LONDON (Reuters) - Will the U.S. hiring slowdown displayed in Wednesday's ADP (NASDAQ:ADP) data and the lacklustre Beige Book activity index pressure Congress into agreeing additional fiscal stimulus? That's what markets seem to expect.

That, alongside progress on coronavirus vaccines and evidence of a Chinese growth bounceback are spurring an epic reflation trade -- world stocks at new all-time highs and the S&P 500 posting another record close. The mood is calmer on European and U.S. equity futures but the commodity complex is helping -- record high iron ore futures are lifting miners' shares such as Rio Tinto (LON:RIO) and BHP.

Reflation bets are in full swing on bond markets too -- two-year/10-year Treasury yield curve have climbed to the steepest since Feb. 2018 and inflation-adjusted yields too have steadily risen. And with the dollar index at 2-1/2 year lows, commodity- and growth-driven Aussie dollar, Norwegian crown and emerging currencies are benefiting.

It all puts extra focus on what the U.S. Fed and the ECB might do about all this. Expectations are building the Fed will move to tamp down longer-dated yield and while the ECB has already as good as promised to expand bond buying, could it do more, given the euro has hit the highest since April 2018. And more M&A -- French telco Orange plans a bid for shares in Orange Belgium, in an offer worth around 620 million euros. It has offered a 35.6% premium to the Dec. 2 closing price. Italy's Creval holds a board meeting as it tries to extract a higher offer price from suitor Credit Agricole (PA:CAGR).

Key events that should provide more direction to markets:

-Final November services and composite PMIs

-Weekly U.S. jobless claims

-Meeting of OPEC+ on next year's oil output policy; expected to roll over output cuts until end-March

-ECB Board member Andrea Enria speaks at the FT online Banking Summit 2020

-Airline SAS is seen falling 7% after reporting big Q4 losses. Travel firm Tui meanwhile secured a third state bailout

Daily Briefing: Reflation!

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