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Macro overview of the current week

Macro overview of the current week

18 November 2020

Asia created the world’s largest trading block

Over the past few years, Asian countries have shown tangible growth in economic performance. Fifteen countries in the Asia-Pacific region on Sunday formed the world’s largest free trade bloc without the participation of the United States, but with the support of China.

The signing of the Regional Comprehensive Economic Partnership (RCEP) took place at the regional summit of the Association of Southeast Asian Nations (ASEAN) in Hanoi, which was held online.

The countries of the new trading bloc account for 30% of world GDP and almost a third of the world’s population. Their combined market is 2.2 billion consumers.

The United States does not participate in the RWEP and in 2017, by decision of President Donald Trump, withdrew from another alliance – the Trans-Pacific Partnership, created under Barack Obama. This puts the world’s largest economy outside of two trading blocks covering the world’s fastest growing region.

The RWEP could strengthen China’s position with Southeast Asia, Japan and Korea by providing the world’s second-largest economy with leverage to shape the region’s trade rules.

In addition, the partnership could help Beijing reduce its reliance on foreign markets and technology, which is growing due to deteriorating relations with Washington, said Iris Pang, chief economist at ING.

The RWEP brought together the 10-member Association of Southeast Asian Nations (ASEAN), as well as China, Japan, South Korea, Australia and New Zealand. In the coming years, the bloc will seek to gradually reduce tariffs in many areas of trade.

For the rival East Asian powers China, Japan and South Korea, this is the first ever joint free trade agreement.

Citigroup does not exclude a weakening of the dollar index by 20% in 2021 due to the emergence of a vaccine against COVID-19

The pressure on the dollar has been growing lately. This is mainly due to the uncertainty in the markets, as well as the Fed’s policy. Some analysts believe that the fall of the American currency may intensify. The dollar could fall by 20% in 2021 if vaccines against COVID-19 become widespread and this will help revive global trade and economic growth, experts say Citigroup Inc.

“We believe that vaccine penetration will eradicate all signs of a bear market, and the dollar will perform similarly to that seen from the early to mid-2000s,” as the currency began a multi-year decline cycle, Citigroup strategists said in a report …

The Bloomberg Dollar Index, which has fallen about 11% since its peak in March, came under additional pressure on Monday amid news of successful trials of the COVID-19 coronavirus vaccine developed by biopharmaceutical company Moderna Inc., which weakened demand for safe assets.

For several months, experts have been betting that the results of the US elections, a breakthrough in vaccine development and the policy of the US Federal Reserve System (FRS) may put significant pressure on the dollar. The election results ultimately did not become a catalyst for a sharp drop in the rate of the American national currency, and Citigroup experts note that the general macroeconomic situation will become a more significant driver that will determine the dynamics of the dollar in the future.

Investors will subsequently need to buy the Australian dollar and the Norwegian krone, as both are pegged to commodity prices and a cyclical global economic recovery should boost their growth, experts say.

Citigroup expects that, in addition to the vaccine situation, the dollar will be under pressure from the Fed’s soft monetary policy amid a normalized global economy. Growth in other regions of the world is likely to come at a faster pace as investors withdraw from US assets and invest in foreign ones.

“If the yield curve for US bonds steeper as inflationary expectations rise, investors will have an incentive to hedge currency risks, strategists say.

Analysts surveyed by Bloomberg expect the ICE dollar index to decline by about 3% on average by the end of next year. The most significant annual decline in the indicator was recorded in 1985, when it collapsed by 18.5%.

Thus, even despite the fact that the American currency is considered to be one of the most stable in the world, the risks of investing in it still persist.

US mortgage rates stay below 3% pa ​​for sixteen consecutive weeks

US mortgage rates are among the lowest in the world. Against the background of the Fed’s soft policy, rates remain at a very attractive level for consumers. So the cost of long-term mortgage lending in the United States over the past week has increased from a historical low, however, it remains below 3% per annum for sixteen weeks in a row.

The average fixed interest rate on 30-year mortgages climbed to 2.84% from 2.78% a week earlier, according to a review by state mortgage corporation Freddie Mac. The previous week was the lowest level since settlement began in 1971.

In mid-November last year, the rate stood at 3.75% per annum.

Fifteen-year loans are now provided at an average of 2.34% per annum against 2.32% a week earlier, the rate of five-year loans jumped to 3.11% from 2.89% per annum.

The market was driven by the preliminary results of the presidential election and the news of the success of the coronavirus vaccine being developed by the American Pfizer (NYSE: PFE) Inc. and the German BioNTech.

Traditionally, the cost of mortgage loans with a slight lag follows the dynamics of the yield on US government bonds. The yield on 10-year US Treasuries is on Thursday slightly above 0.9% per annum compared to 0.77% a week earlier.

Rates do not include potential commissions and other mortgage-related payments. Freddie Mac calculates average rates based on data from approximately 80 mortgage companies across the country.

The average rate on a 30-year mortgage in 2019 was 3.9% per annum (one of the lowest in the last half century), up from 4.54% a year earlier.

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