- On the domestic data front, investors will today contend with the Markit/Stanbic PMI reading for December. Recall in November, the index rose further, coming in at a 21-month high of 49.3 from 48.3 in the month prior. However, the reading signalled a slight deterioration in operating conditions as it remained below the 50-point neutral mark. According to Markit, COVID-19 continued to impact output and new orders, however, as well as disrupting supply chains. Currency weakness led to another marked increase in input costs, while efforts to manage expenses contributed to reductions in employment, purchasing, and wages. Meanwhile, hopes that business conditions will improve over the coming year as the pandemic passes supported confidence that activity will increase. That said, sentiment remained historically muted amid continuing challenging business conditions.
- Stateside, the release of Fed meeting minutes and ADP employment change data out of the US will likely be eclipsed by political developments. Nonetheless, the strength of the labour market in the US has become an important gauge of the business cycle in recent months, as has the Fed’s interpretation of all the data. The US was on a firmer footing and looked to be gaining traction through early Q4 before the fresh surge in infections. The recovery trajectory may well be hampered by fresh restrictions as will business and household sentiment.
- All eyes are on the outcome of the high-stake Senate runoff elections in Georgia that took place overnight. As things stand, exit polls suggest the outcome is still too close to call. Republican incumbent David Perdue is leading his election race against Democrat Jon Ossoff by a very small margin, while Democrat challenger Raphael Warnock has taken a stronger lead against Republican incumbent Kelly Loeffler in their runoff election. As the results become clearer through the early stages of today’s trade, investors are likely to leave the market side lines and become more active.
- Initially, a Democrats clean sweep of Georgia could raise expectations of more fiscal stimulus measures being applied to the US economy. That would be growth generative and would go some way to explaining the steepening in the US yield curve and the rise in bond yields. Over the medium to longer-term however that implies that there is more debt on the US balance sheet that will require some fairly substantial fiscal re-forms. Whether a more socialist minded Democrat party has the means to impose such reforms is questionable.
- The trade weighted USD remains under pressure. The depreciative bias remains intact and the thought of a Democrat win that will likely lead to even more US regulations and more fiscal stimulus has left USD bulls unimpressed. Other major currencies have taken their cue from the USD’s inability to gain traction and gained some ground. For now, the bias remains against the USD and selling USD upticks the favoured strategy. Ultimate direction could however come once the Georgia election results are made final and official. For now a USD under some pressure could offer some reprieve to the Kwacha at the margin.
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