Monex Morning Report – Fri 27 Nov 2020

OVERNIGHT HIGHLIGHTS

European stocks struggle for traction as virus worries; U.S. close for Thanksgiving holiday keep investors on the sidelines

Australia seeks to break China coal stalemate as tensions rise; Bitcoin plunges along with other coins

Australia seeks to break China coal stalemate as tensions rise

Prime Minister Scott Morrison said he’s appointed his “best people” to work on breaking a stalemate that’s seen more than 50 ships laden with Australian coal stranded off Chinese ports, as tensions between the trading partners increase. More than $500 million worth of Australian coal and about 1,000 crew on the ships are stuck after China blacklisted a wide swathe of Australian commodities and foodstuffs, amid what Morrison described on Thursday as an “extraordinary period” in the relationship. “We will work the process through with the Chinese government to get the best possible outcome that we can,” Morrison said in an interview with Nine Network television. While he said “there are obviously tensions” in the relationship, they wouldn’t be “resolved by Australia surrendering its sovereignty.” Mending ties won’t be easy: Morrison’s ministers have had no direct contact with their counterparts in Beijing since at least April. That’s when Australia exacerbated existing grievances with China by calling for independent investigators to be allowed into Wuhan to probe the origins of the coronavirus. As well as the deadlock over Australian coal, Beijing has placed crippling tariffs on Australia’s barley exports, halted beef imports from several large meat plants, warned its citizens against holidaying or studying in Australia and ordered traders to stop buying at least seven commodities including copper and wine.

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Euro zone to move on bailout fund reform amid COVID worries

Euro zone finance ministers are likely to push ahead next Monday with stalled changes to their ESM bailout fund to strengthen the resilience of the common currency area as the COVID-19 pandemic increases risks of future economic trouble. After almost a year since their agreement “in principle” on widening the responsibilities of the European Stability Mechanism (ESM), ministers from the 19 countries sharing the euro currency are likely to give the deal a final go-ahead. “The aim is to finally reach an agreement on the ESM treaty reform and the early introduction of the backstop to the Single Resolution Fund,” a senior euro zone official taking part in the preparations for the meeting said. Changes to the ESM treaty are intended to reduce the risk of investors holding out for a better deal in any sovereign debt restructuring and give the bailout fund room to mediate between the sovereign and investors.

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ECB’s Lane warns against tolerating low inflation as more stimulus looms

The European Central Bank’s chief economist warned on Thursday that accepting “a longer phase of even lower inflation” would hurt consumption and investment as well as cementing expectations for low price growth in the future. The ECB is preparing a new stimulus package to help cushion the impact of the coronavirus pandemic. It’s also reviewing the way it goes about its business, after failing to raise inflation to its target for almost a decade. Lane said that simply letting price growth undershoot the ECB’s target of just under 2% was not an option.

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EU considering stopgap measure for UK financial services post Brexit, says EU diplomat

European Union assessments of whether to grant market access for banks and other financial firms from Britain will not be completed in time for January and stop-gap measures are being considered, an EU diplomat said on Thursday. Britain’s unfettered access to the EU under transition arrangements ends on Dec. 31, leaving the City of London faced with being cut off from its biggest export customer, worth around 26 billion pounds a year. The EU assessments are being made by the European Commission, which declined to comment, under the bloc’s system of direct financial market access known as equivalence. “The European Commission told member states on Thursday that the equivalence decisions won’t be ready from January 1,” said the EU diplomat, who took part in the closed-door briefing. “They are now looking at how to handle the gap,” said the person, who spoke on condition of anonymity given the sensitivity of the discussions.

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OPEC+ projected to delay oil output hike by at least three months

OPEC and its allies will likely delay a supply increase planned for January by three months, according to a survey of oil analysts, traders and refiners. The 23-nation coalition led by Saudi Arabia and Russia will probably defer the 1.9 million-barrel hike when they meet next week, according to all but two of 36 respondents to the poll. Twenty-seven predicted a delay until the start of the second quarter. While crude prices have rebounded to an eight-month high, demand in early 2021 still looks too fragile to absorb the extra barrels. At the same time, key OPEC+ members Iraq and the United Arab Emirates have signaled they’re eager to ramp up sales as soon as possible. “OPEC+ will make good on its commitment to be proactive and adjust to evolving market circumstances, notably short-term economic and oil demand weakness,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA. “A three-month delay will allow for a consensus to be reached quickly, without too much push back from members eager to start increasing their output again.”

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China will make monetary policy more flexible, targeted – c.bank

China’s central bank said on Thursday it will make prudent monetary policy more flexible and targeted, and reiterated it will not resort to flood-like stimulus. China will keep the macro-leverage ratio basically stable and improve the bond default risk prevention and disposal mechanism, the People’s Bank of China (PBOC) said in its third-quarter monetary policy implementation report.

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Bitcoin plunges along with other coins

Bitcoin plunged on Thursday in a sell-off that saw other digital assets fall more than 20%, a slide likely to stoke speculation about the durability of the latest boom in cryptocurrencies. The largest token fell as much as 14% in Thursday trading, heading for one of its worst days since the pandemic-spurred liquidation in March. The rout began just hours after Bitcoin rose to within $7 of its record high of $19,511, the culmination of a more than 250% surge in past nine months. Fears over tighter crypto regulation and profit-taking after a frenetic rally were among the reasons cited for the sudden drop. The sell-off gathered pace late Wednesday after Coinbase Inc. Chief Executive Officer Brian Armstrong tweeted about speculation the U.S. is considering new rules that would undermine anonymity in digital transactions. “News that the Trump administration may clamp down on crypto might have been a trigger for the drop,” said Antoni Trenchev, managing partner of Nexo in London, which bills itself as the world’s biggest digital-coin lender. “But any asset that rallies 75% in 2 months and 260% from the March lows is allowed to undergo a correction.”

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Disney cuts 4,000 more jobs, blaming virus hit to theme parks

Walt Disney Co. announced an additional 4,000 job cuts after virus lockdowns forced the closing of its theme parks. It takes the number of layoffs in the first half of fiscal 2021, mostly at Disney’s parks, experiences and products divisions, to 32,000 — more than 10% of its total workforce. The company’s parks in California remain closed due to a standoff with the state over lockdown measures. Results earlier this month revealed how the COVID-19 pandemic has hammered Disney’s traditional businesses, including studios, parks and cruises, while accelerating a pivot to streaming. The theme parks showed a loss of $1.1 billion in quarterly results this month. That was made up for by surging growth in its on-demand video platform Disney+, which smashed subscriber number estimates. Disney Chief Executive Bob Chapek, who took over from longtime chief Bob Iger in February, shook up the company’s management structure last month to further emphasize streaming. With movie theaters still closed, Disney released its remake of “Mulan” on Disney+.

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