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The Year of the (Policy) Ox
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Andrew Kositkun Foreign Exchange Head Trader
China held its annual Central Economic Conference (CEWC) last week to set its policy priorities for 2021. At the conference, China’s top policymakers emphasized the desire to keep policy accommodative to support a sound recovery. Additionally, recent economic momentum has led some to speculate about policy tightening, but policymakers quashed this by underscoring that there will not be a policy U-turn.
In essence, growth stability remains China’s top priority. As is a customary practice, the CEWC did not release a numerical growth target, as this is normally done by the National People’s Congress (NPC) in March. That said, it will be interesting to find out if the NPC resumes setting a growth target after skipping it for 2020. It is likely that the growth target does return next year because 1) 2020’s low base makes a growth target a relatively low bar, and 2) the mandate to double GDP requires trading annual growth for the next 15 years.
Beyond pledging to support continued economic growth, the CEWC also set forth a set of key tasks for 2021 that emphasizes quality development and structural issues. Key examples of this are as follows:
Prioritize technological independence: Faced with both the U.S. threat of cutting off component supplies and the long-term goal of improving technology, China has committed to mobilizing a “whole nation system” to achieve technological independence.
Boost domestic consumption and investment: Policymakers have reiterated the desire to expand consumption by ensuring employment, improving income distribution and removing administrative limits, such as automotive purchasing restrictions, in most cities. Regarding investments, infrastructure to support the digital economy is of particular importance.
Further reforms and open up the economy: China has pledged to push ahead with reforms such as protecting IP, lowering market barriers to entry and improving capital market efficiency. The Chinese government has also stated the desire to strengthen anti-monopoly rules.
Ease housing strains in big cities and achieve carbon neutrality: The government aims to ease housing strains by developing the rental market and underscored that housing is “for living, not for speculation purposes.” Additionally, the country wants to peak its carbon emissions by 2030 and turn neutral by 2060.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
U.S. initial jobless claims dropped by more than expected to 803,000 from 892,000. Market consensus was for a drop to 880,000. This was the first decline in initial jobless claims in three weeks, although claims still remain elevated. Continuing claims also dropped, with the series coming in at 5.3 million versus estimates for 5.6 million claims.
U.S. consumer spending, which accounts for the majority of the economy, fell 0.4% last month versus expectations for a 0.2% decline. Today’s print was the first drop since April. Personal income also fell more than expected, declining 1.1% as several pandemic aid programs wound down. Consensus was for a 0.2% decline. Overall, the data shows a struggling U.S. economy amid rising COVID-19 cases and underscores the need for stimulus to bridge us until the country achieves mass vaccinations.
Speaking of stimulus, President Trump has called the proposed deal a “disgrace” and asked for stimulus checks to be raised to $2,000 from $600. House Speaker Nancy Pelosi has expressed support for this idea and indicated that the House will try to pass additional measures. If Trump doesn’t sign the bill by Dec. 28, the government will enter a partial shutdown. It should be noted that the bill passed both chambers of Congress with veto-proof margins.
Pfizer will supply the U.S. with 100 million more doses of its vaccine, taking the total number of doses expected to be delivered by July 31 to 200 million.
The British pound is up on reports that a Brexit deal could be agreed upon as soon as today. It has also been reported that EU member states have started to put procedures in place to apply a trade deal if one is agreed to.
Trade and travel links between the U.K. and centennial Europe have started to reopen after France lifted a blockage at the U.K.’s busiest port.
Israel will hold its fourth election in two years after the government failed to agree on a budget amid talks of a third national lockdown and 15% unemployment. Voting will take place on March 23, 2021.
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