Major events of the upcoming week
Last week, investors showed restrained optimism about the prospects for the development of the world economy. The market reacted positively to news of the start of the COVID-19 vaccine, despite high rates of illness in the US and Europe. Investors hope that a large-scale vaccination program will help bring the virus under control soon.
The strong PMI data for manufacturing and services in the EU was a pleasant surprise for traders. The manufacturing sector continues to recover despite tightening quarantines, while the service sector has suffered less losses than expected. This data may indicate that the second wave of the pandemic caused significantly less damage to the economy than the spring lockdown.
The United States is awaiting the completion of protracted negotiations on a new aid austerity program. Neither Republicans nor Democrats want to extend the negotiation process. Investors hope that the Fed's soft policy and new stimulus measures will soften the blow of the second wave of the pandemic and help the economy quickly get on the path to a sustainable recovery.
The main intrigue of the last days of 2020 will be trade negotiations between the UK and the EU. Several news outlets reported last week that both sides want to complete the negotiation process before Christmas.
China - Decision of the People's Bank of China on the base interest rate
China's economy continues to recover at a very fast pace. Growth was ensured not only by the restoration of economic ties with other countries, but also by stimulating domestic consumption.
One of the most important elements of stimulating domestic demand is the monetary policy of the ECB. In order to support the economy, in April this year, the base interest rate in China was reduced from 4.05 to 3.85%. Since then, the rate has not changed. Most likely, this year the level of the base rate will remain unchanged, since at the moment it fully meets the current needs of the economy and ensures high rates of recovery.
UK and EU - trade negotiations
The ongoing Brexit thriller continues. The UK and the EU have been struggling for months to find a compromise on key trade agreement issues. The deadline has been repeatedly postponed, but now the sides have come to the finish line. London and Brussels remain uncompromising, which increases the likelihood of the UK leaving the EU without an agreement.
At the end of last week, Boris Johnson's office stated that the most likely outcome is that further cooperation between the UK and the EU will be carried out within the framework of WTO rules. EU officials refrain from making forecasts. The chief negotiator from the European side, Michel Barnier, said that the parties must prepare for any outcome of Brexit.
The most likely scenario now is that the UK will leave the EU without a trade agreement. In this case, we can see very strong market fluctuations. All risky assets will be under attack. The greatest losses will be suffered by the British pound sterling and the euro. But it cannot be 100% excluded that at the very last moment the parties will be able to agree. Many have repeatedly said that the UK is deliberately delaying negotiations in order to achieve the most favorable terms of the trade agreement for itself. In the event of a hard Brexit, the losses to the UK economy will be incommensurate with the losses to the EU economy. If in the last days of the outgoing year, the parties are able to sign a trade agreement, the market could end a very difficult 2020 with very good growth.
USA - data of final estimate of US GDP growth for the 3rd quarter
In the third quarter, the US economy showed strong growth after all restrictions were lifted. The market was dominated by optimistic sentiments.
The data from the initial assessment recorded a record growth rate of 33.1%. Most likely, the final figures will coincide with the forecast, but this data is unlikely to have a strong impact on the market. Now everyone understands that the economic recovery will take much longer than previously predicted. Economic growth rates in the 4th quarter will slow down significantly. Leading indicators, which show the current state of the economy and the prevailing trends, are of the greatest interest to traders now.