ECB eases again; China credit creation still advancing at a healthy pace
- The ECB expanded the Pandemic Emergency Purchase Programme (PEPP) by €500bn at its December meeting, as was largely anticipated. This takes the total support envelope to €1.85tn which will be used in their bond buying programme until at least March 2022 (previously June 2021). President Lagarde noted in the press conference that the full amount “need not be used in full”, and the amount will be “recalibrated” as they continue to monitor financing conditions and inflation.
- China’s Total Social Financing (TSF) showed signs of normalising in November, slowing marginally for the first time since the onset of the pandemic from 13.7% YoY to 13.6% YoY. Bank loan growth declined from 12.9% YoY to 12.8% YoY, driven by lower new bond issuance and a decline in shadow credit (informal bank lending). Putting this into perspective, total TSF of RMB 33.2tn provided in the first 11 months of this year represents 129% of the full-year TSF flow in 2019. On alternative credit facilities, government bond issuance slowed to RMB 400bn in November (October: RMB 493bn yuan) and corporate bond issuance fell to RMB 86bn (October: RMB 252bn).
UK GDP beats expectations in October
- UK GDP rose +0.4% MoM in October, against expectations of 0.0%, leaving GDP 7.9% lower than its pre-pandemic level. Manufacturing saw the strongest growth over the month (+1.7% MoM), supported by transport equipment (+5.4% MoM). However, services were also stronger overall (+0.2% MoM), despite contraction in accommodation and food services (-14.4% MoM), financial services (-0.2%), household services (-2.5%) and agriculture (-1.4%). Retail trade, education and health services provided growth in the services sector.
Risk markets lose some momentum on rising Brexit tensions
- With both EU officials and UK Prime Minister Johnson stating that a no-deal Brexit appeared “the most likely outcome” European equities, particularly Banks, evidenced some weakness into the weekend, although the weekend agreement to go on negotiating provides scope for these losses to be reversed. Indeed, some commentators have contended that 31st December may not be the “hard deadline” for a deal, with an extension of the transition period being a nontrivial possibility.
- Globally, equities and credit were little changed on the week, with government bonds rallying somewhat led by bund and above all UK gilts. The US dollar was modestly weaker, notably against emerging markets currencies.