Situation still delicate in the euro zone

The euro broke in spectacular fashion out the 1.1600–1.2000 range it had remained in since July 23. Appetite for so-called risky investments is back! The arrival of several vaccines on the market is fostering hopes of a global economic rebound in 2021. The greenback has also not been helped by the latest employment statistics. The new wave of COVID-19 and the measures that have been taken to counter the epidemic plagued the US job market in November. Figures published on Friday show that the economy created 245,000 jobs, excluding the agricultural sector, in November against 610,000 in October, while analysts were expecting 460,000 new jobs. The unemployment rate fell by 0.2% to 6.7% as expected. Job creation in the private sector was particularly disappointing: this sector generated only 344,000 new jobs against 906,000 previously. Negotiations on the economic aid package and the 2021 budget have resumed between Democrats and Republicans. Yesterday, Treasury Secretary Steve Mnuchin announced the Trump administration’s new $916 billion proposal to revive the US economy beaten down by the pandemic. This proposal was immediately rejected by Nancy Pelosi, leader of the Democrats in the House of Representatives and by Chuck Schumer of the Democrats in the Senate. The rejection raises the uncertainty about the implementation of this stimulus plan before Joe Biden´s inauguration on January 20. To avoid a government shutdown, the US Congress should vote by Friday a law to extend the current budget and thus be able to continue negotiations. But time is running out because millions of Americans will no longer receive federal aid from December 26 even as economic activity declines following the resurgence of the pandemic.

In Switzerland, Gross Domestic Product rebounded more than expected at 7.2% for the third quarter, against a contraction of 7% the previous one, supported by domestic demand and the tertiary sector. This significant catch-up partially offsets the drop experienced during the first half of the year, but GDP is still down 1.6% YoY. The figures are nevertheless better than expected. The franc, which had fallen to 1.0872 against the single currency, is recovering a little, taking advantage of many uncertainties, including of course those related to Brexit. The pound sterling is under pressure again as negotiations progress at a snail´s pace. The European negotiator Michel Barnier informed the ambassadors of the EU-27 that no progress had been made this weekend on the three subjects blocking the post-Brexit deal: fishing rights, fair competition rules and the future mechanism for dispute resolution. Boris Johnson is travelling to Brussels today to meet Ursula von der Leyen in a likely final attempt to unblock negotiations as a European summit will be held on Thursday and Friday and the December 31 deadline raises more and more fears of a “no deal”. The pound which was back well above 1.2000 against the franc is now trading again below 1.1900. It lost more than two cents against the US dollar after hitting 1.3539 on December 4, despite the decline in the greenback.

The OPEC and its allies have finally reached an agreement on oil production for January 2021. The cartel decided to ramp up production by 500,000 barrels per day. Originally the negotiations focused on an increase of 1.9 million barrels but the greater-than-expected economic impact of the second wave of coronavirus has led them to revise this figure downwards. The price of the WTI barrel stabilized around $45.00 since this agreement.

Attention over the weekend will be on Europe, with the European Central Bank’s monetary policy meeting as the highlight tomorrow. The situation is still delicate in the euro zone where activity indicators indicate a relapse of growth into negative territory in the fourth quarter due to more restrictive health measures in the face of the resurgence of COVID – and less monetary and fiscal support than in the United States. All eyes are now on the ECB. It should increase and extend the PEPP plan for the economy after the fiscal stimulus plan was blocked by Hungary and Poland. The other European hotspot will obviously be the Von der Leyen–Johnson meeting today and the European summit that will follow tomorrow and Friday.