Take Five: Santa vs the Grinch

1/ CHRISTMAS CONUNDRUM

Christmas is coming and many countries are torn between giving citizens a respite from stringent restrictions and tightening those restrictions with coronavirus cases soaring.

Recent days saw the toughest tier of restrictions imposed on much of England, Germany going into full lockdown and South Korea facing its worst outbreak since the pandemic started.

Germany and the UK will relax rules slightly so families can celebrate. JPMorgan predicts the impact of UK easing on infections, hospitalizations and deaths could be huge, making a January national lockdown more likely.

Yet nothing seems to stymie the year-end Santa rally with world stocks, oil prices and bitcoin in a festive mood, feasting on U.S. stimulus bets and COVID-19 vaccines hopes. Signs that the New Year will bring new lockdowns could serve as a cruel reminder that the global economy will be dealing with virus aftershocks well into 2021.

– After the cheers come jeers for Germany’s Merkel over COVID-19

– Majority of small U.S. businesses see worst coronavirus impact still ahead -poll

(Graphic: COVID-19 in Europe and Citi’s economic surprise index – )

2/ TUNNEL VISION

With the clock ticking and British and European negotiators in the tunnel, weary investors are looking again at unloved British assets.

Some argue they might deserve a second chance. Since the 2016 Brexit referendum vote, global investors have ditched British assets, with the country’s stock market suffering $60 billion of outflows.

The pound is among the most undervalued of the major currencies on a trade-weighted basis, while equity risk premia for the stock market are above their long-term average.

With policymakers likely to keep monetary conditions ultra-easy, Britain’s economy may benefit in 2021 from the nationwide rollout of a COVID-19 vaccine.

-Brexit deal or no deal, meat supply lines will choke on red tape

(Graphic: UK stock market premium – )

3/ BALANCING ACT

China fixes its benchmark lending rate on Monday with investors looking for clues on the outlook and attitude of the People’s Bank of China and the country’s economic planners.

Almost no one forecasts a move. But recovery risks are emerging, lately highlighted by a slew of defaults, prompting the PBOC to pour cash into the banking system – an accommodative move against an expected drift toward tightening. The annual closed-door Central Economic Work Conference – to be held soon – will focus on this balancing act.

As global investors tip Chinese debt as a top buy, perhaps recent resistance to the yuan’s rise and a widening gap between its onshore and offshore prices points to discomfort on one side of the trade – and complacency on the other.

-China set to keep lending benchmark LPR steady for 8th straight month

– China c.bank injects record 950 bln yuan of medium-term funds after bond defaults

(Graphic: China’s policymaking balancing act – )

4/ JOINING THE CLUB

Tesla joins the S&P 500 on Monday, and index funds will snap up some $80 billion worth of the electric carmaker’s shares to adjust portfolios.

Tesla shares have surged almost 700% year-to-date, putting its stock market value at over $600 billion and making it the sixth most valuable listed U.S.-company.

Some say its share price is far ahead of fundamentals and there is a hot debate on where the stock will go from here. Analysts have an average price target of $396.30 per share, more than a third below its current price – though estimates vary from $40 to $774 per share.

-Tesla heads to the S&P after meteoric rise and some investors want more

-Tesla to see unprecedented trade ahead of S&P 500 debut

(Graphic: Tesla joins the S&P 500: small profits in a big pond – )

5/ TURKEY TIME

Turkey’s central bank governor, Naci Agbal, has another chance to confirm the country’s return to orthodox monetary policy on Dec. 24.

Markets cheered his November move to bump the benchmark up to 15% as well as the commitment to put price stability at the centre of monetary policy.

A Reuters poll showed analysts expect the central bank to raise rates again between 100 and 200 basis points. With geopolitical tensions in no short supply, investors want to see the central bank follow through on Agbal’s pledges.

-UPDATE 2-Turkey says will not reverse Russian S-400S purchase despite US sanctions

-Turkish locals’ forex holdings at new record high as of Dec. 11 -cenbank

(Graphic: Turkey interest rates and inflation – )