Markets alternatively soared and contracted on news of a 95 percent-plus efficacy of the Pfizer and BioNTech, and Moderna coronavirus disease (COVID-19) vaccines, while contracting over figures showing the virus raging out of control in the US and Europe, necessitating further restrictions and lockdowns. The latest stimulus worries in the US and the EU did not help either.
The rotation out of growth stocks into value stocks subsided with every new positive announcement on vaccines, because reality set in that manufacturing and distribution of vaccines at scale would take time.
Going forward, emerging markets could benefit from improvements, especially with further depreciation of the dollar on the cards.
US first-time jobless claims for the week ending Nov. 14 rose for the first time in five weeks reaching 742,000 — up 31,000 compared to the preceding week.
Turkey’s new Central Bank Gov. Naci Agbal raised the one-week repo rate from 10.25 percent to 15 percent, which was well received by markets, with the Turkish lira appreciating 2.5 percent on the news. The move instilled confidence because investors expect less volatility.
The Joint Ministerial Monitoring Committee of OPEC+ attested to a compliance with the 7.7 million barrels per day (bpd) production cuts of 101 percent. A press statement was worded vaguely enough to leave the option open to extend the current cuts during the ministerial meeting on Nov. 30 and Dec. 1.
Adhering to the schedule agreed in April, OPEC+ would release an extra 2 million bpd onto the market. This would be inopportune given the effect new restrictions and lockdowns in North America and Europe have on demand. Furthermore, Libya, (currently exempt from cuts) has added another 1 million bpd on the market since September.
Negotiations are likely to be tense during the ministerial meeting, especially as the UAE is said to be leaving all options open, because it does not agree with further cuts until all OPEC+ members have compensated in full for their overproduction since May.
Saudi Aramco issued $8 billion worth of bonds with maturities worth 3, 5, 10, and 30/50 years with Citi, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, and NCB advising on the transaction. Investors are said to have placed more than $50 billion of orders.
Saudi Arabia raised the minimum wage for Saudi citizens by 33 percent to SR4,000 ($1,067) starting mid-April. This will help provide relief to the low-income segment of the population for the tripling of VAT earlier this year.
The Saudi sovereign wealth fund (PIF) has increased its holding in ACWA Power International to 50 percent ahead of the latter’s initial public offering (IPO). ACWA Power is one of the largest developers in the region. The move is in line with the Kingdom’s strategy to build national champions and develop renewable sources of energy.
During the ASEAN (association of southeast Asian nations) summit in the Vietnamese capital Hanoi, 15 Asian countries signed the world’s largest free trade deal. The Regional Comprehensive Economic Partnership (RCEP) includes 2.2 million people and a combined GDP of $26.2 billion. It includes China but excludes the US and other countries on the western Pacific rim.
Unlike the Trans-Pacific Partnership (TPP), which was ratified under former American President Barack Obama’s administration, the RCEP does not include liberalization of the economy nor labor and environmental standards in its agenda. The TPP excluded China while the RCEP excludes the US.
The agreement is important to China, because in Beijing’s view recent trade frictions and controversy over technology and security concerns of participation in the global roll-out of 5G networks necessitates further integration of supply chains within the Asia Pacific region.
India was initially slated to be part of the RCEP, but in the end declined on account of its concerns over trade deficits and being flooded with Chinese goods.
Leaving the TPP was US President Donald Trump’s first official act when he assumed office in January 2017. Canada and Japan revived a pared-down version named the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with the TPP members minus the US. It will be up to US President-elect Joe Biden’s administration to decide whether and under what conditions to (re)join the CPTPP.
Chinese President Xi Jinping addressed the virtual Asia-Pacific Economic Cooperation (APEC) meeting in Kuala Lumpur, Malaysia stressing the importance of free trade.
Stimulus packages have come under fire on both sides of the Atlantic: The EU’s next 1 trillion euros ($1.19 trillion) five-year budget as well as its stimulus package (750 billion euros), could not be passed on account of Poland and Hungary vetoing the rule of law conditionality. In Poland, it pertains to the retirement of judges and in Hungary, to declaring applications for asylum illegal and for forcing the activities of investor George Soros’ Central European University abroad.
The odds are, that there will be a compromise, especially as both countries benefit from the EU budget. The ball is now in the court of Germany, which holds the EU presidency. German Chancellor Angela Merkel has long been known as a competent mediator between the Visegrad states and the EU.
In the US, Secretary of the Treasury Steve Mnuchin announced to the Federal Reserve that the central bank should end the following five of its stimulus programs by the end of this year and transfer excess funds: Primary Market Corporate Facility, Secondary Market Corporate Facility, Municipal Liquidity Facility, Main Street Lending Program, and Term Asset-Backed Securities Loan Facility.
The $580 billion, which were not used under these programs, would revert to Congress and be made available for fiscal stimulus packages. This could only work if the House of Representatives (controlled by the Democrats), the Senate (controlled by the Republicans), and the White House could agree on a way forward, which looks unlikely given the current controversy over the election between Biden and Trump, and the Democratic and Republican parties.
Where we go from here:
On Nov. 21 and 22, the G20 Summit will take place virtually from Riyadh under the Saudi presidency. The theme of the conference is “Realizing Opportunities of the 21st Century for All.” The COVID-19 pandemic and its impact on the global economy, as well as inequality and a fair distribution of vaccines, will all feature high on the agenda.
Managing Director of the International Monetary Fund Kristalina Georgieva stressed that while the news on vaccines was encouraging, the spread of the virus and new restrictions and lockdowns posed a real threat to the economy.
She warned that economic recovery was “losing momentum, and in that context our first message to leaders is: Do not withdraw support for the economy prematurely.”
Brexit negotiations have been dragging on and time to reach a trade agreement is running out because it would need to be ratified by the UK and EU parliaments. Meanwhile, Belgium and France urged EU leaders to prepare for a no-deal Brexit.
— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources