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Investors expect the global economy to roar back to life by the middle of 2021 — and fresh data bolsters the case for looking past a tough winter and toward a post-pandemic future.
What’s happening: Driven by demand for electronics and medical equipment, China’s exports jumped at the fastest pace in almost three years in November. The country’s trade surplus is now at a record.
This reveals that demand for goods has remained robust during a wave of fresh coronavirus restrictions in Europe and the United States.
“Firm pre-Christmas demand may explain some of the strength in [November] exports, but nonetheless, positive readings are likely to be sustained,” said Mitul Kotecha, emerging markets strategist at TD Securities.
China’s imports also grew for the third month in a row, indicating a healthy level of domestic consumption. The country is the only major economy expected to grow this year.
Step back: The Organization for Economic Cooperation and Development has predicted that global GDP can rebound to pre-pandemic levels by the end of next year. But that’s largely reliant on activity in China, which is expected to account for more than one-third of global economic growth in 2021.
Other countries are already benefiting from China’s strength. Germany’s export-oriented economy saw production rise 3.2% in October compared to the previous month, beating expectations. This was before the reimposition of some coronavirus restrictions, however — and the most recent Ifo Institute business survey shows that “production expectations for the coming months have deteriorated.”
More good news: A bipartisan group of US lawmakers is expected to put forward details on their compromise stimulus package as soon as Monday.
“I think we have got the top line numbers done. We are working right now on language so that we can have — as early as tomorrow — a piece of legislation,” Democratic Sen. Mark Warner of Virginia told CNN’s Jake Tapper on Sunday.
Hopes that more government assistance is on the way have been feeding riskier bets, even after a concerning US jobs report for November.
The S&P 500 closed at an all-time high on Friday. Meanwhile, benchmark 10-year US Treasury yields rose to their highest level since March as investors dumped safe haven assets. (Bond yields and prices move in opposite directions.) That’s another sign of faith in the global recovery.
The caveat: The coronavirus crisis is escalating in countries like the United States. More than 101,000 Covid-19 patients were in US hospitals on Sunday, a record high underscoring the immense pressure on the health care system. In California, roughly 33 million residents are now under stay-at-home orders aimed at slowing the virus’ spread.
There may be light at the end of the tunnel, as strength in China and the distribution of vaccines usher in a period of booming economic growth, with governments helping to bridge the gap in the meantime. That’s what investors are choosing to focus on, at least. But we’re not there yet.
Brexit talks come down to the wire
Talks on a trade deal between the United Kingdom and the European Union are about to reach a conclusion — though four and a half years after the Brexit vote, the outcome remains an open question.
The latest: The clock is ticking, but thorny issues like fishing rights and state aid continue to stand in the way of an agreement. Without a deal, Britain will face a messy rupture with its largest export market at the end of this month, when the Brexit transition period expires.
An EU diplomat told CNN on Monday that negotiations have “entered the endgame,” but “the outcome is still uncertain.”
Irish Prime Minister Micheál Martin on Sunday said the situation is “on a knife edge.” He believes there’s a roughly 50% chance that a deal will be reached. Prime Minister Boris Johnson and European Commission President Ursula von der Leyen are set to speak by phone later Monday.
Big consequences: Bank of England Governor Andrew Bailey has warned that failing to secure a new trade deal with the European Union would do more damage to the UK economy over the long run than the coronavirus pandemic.
And the Office for Budget Responsibility has cautioned that a no-deal Brexit would reduce output by 2% next year and leave the UK economy 1.5% smaller after five years compared to a scenario in which Johnson strikes an agreement with Brussels.
Investor insight: Investors have been pricing in a deal, pushing the British pound as high as $1.35 last week. But anxiety is creeping in, sending the currency 1.3% lower against the dollar Monday. It could plunge if no agreement is struck.
China wants to weaponize its currency. A digital yuan will help
China wants to break the US dollar’s stranglehold on the global financial system and gain greater control over how people spend their money. It’s hoping a digital currency can deliver on both fronts, my CNN Business colleague Laura He reports.
The latest: After years of preparation, the country began rolling out an ambitious test of a digital version of the yuan earlier this year. Pilots exist now in four Chinese cities, where transactions totaling more than 2 billion yuan ($300 million) have already taken place.
If the program is expanded nationwide, China would become the most powerful economy yet to offer a national digital currency, beating a forthcoming digital version of the euro from the European Central Bank.
While China is already nearly cashless and a lot of transactions happen digitally, they do so beyond the purview of the state on privately-owned apps and platforms.
An official digital yuan would change that, providing Beijing with an unprecedented look at how and where people are, and what they’re spending their money on — an approach that runs counter to the original intent of digital money. Bitcoin and other digital currencies rely on a decentralized blockchain system that prevents any one person or organization from having control.
“In essence, the digital yuan can help strengthen the state’s surveillance and control over the economy and society,” said Frank Xie, a business professor at University of South Carolina Aiken. “It enhances the centralization of authority. That may be the fundamental reason why it has been strongly pushed and rushed by the state.”
Stitch Fix (SFIX) reports earnings after US markets close.
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