Word Of The Week: Circumspect

MARKETS MORE CIRCUMSPECT Global risk sentiment remained broadly positive over the past week, supported by further encouraging news regarding Covid-19 vaccines, although the continued rise in global virus cases and deaths left investors more circumspect about the nearterm outlook and the path to recovery. Pfizer upgraded its assessment of the effectiveness of its vaccine to 95%, almost matching the Moderna product, while the University of Oxford/AstraZeneca vaccine also reported promising results in phase-two trials. However, Japan recorded a sharp rise in coronavirus cases, while US Covid-related deaths exceeded a quarter of a million. Most major equity indices were up on the week, albeit with much smaller gains than in the previous two weeks. In the bond markets, US 10-year Treasury and UK 10-year gilt yields fell from last week’s highs to ~0.85% and ~0.32%, respectively. In currency markets, the US dollar remained on the back foot, contributing to the pound’s rise above $1.33 in midweek. Sterling was sensitive to Brexit headlines, with reports suggesting that an agreement is close, but gaps remained on fisheries, a level playing field and governance.

PMI SURVEYS TO REAFFIRM TWO-SPEED ECONOMY US Thanksgiving on Thursday means all economic data releases and events are squeezed into the first three days (see box on the right and the calendar on the next pages for forecasts). But the data highlight of the week will probably be the November ‘flash’ PMI surveys, particularly for the UK and the Eurozone, due on Monday. One key theme recently is that there has been the emergence of a twospeed economy, with manufacturing benefiting from the global recovery, while services activity is hit by renewed Covid restrictions. At the same time, the latest restrictions are expected to have a much smaller negative impact than the first lockdown. We forecast UK services PMI to fall below the key 50 expansion/contraction level for the first time since June, dropping to 43.0. Eurozone services is expected to remain below 50 for a third month, declining to 44.0.

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