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Supply Lines: Crunch time in Europe

Supply Lines

Europe faces a series of make-or-break moments this week that could alter the strength of the region's economic recovery from the Covid-19 crisis.

Michel Barnier, the chief European Union negotiator for a Brexit trade deal, told diplomats from the bloc's member states that it's up to British Prime Minister Boris Johnson to make the next move to end a deadlock.

Johnson will speak with European Commission President Ursula von der Leyen on Monday night, by which time the two sides hope things might be wrapped up. Unlikely, and the pound is tumbling on concern about a deadlock.

The U.K. is leaving the European single market and customs union on Dec. 31 — with or without an agreement. Both parliaments still need to ratify any accord, so time is running short for a deal to be implemented in time.

If no agreement is reached, the biggest losers will be businesses and consumers already hammered by the pandemic. In the middle of a winter threatened with supply-chain disruptions, decades of free movement of goods, services, people and capital would come to an abrupt end when Britain goes solo.

Booster Shots

Meanwhile, the U.K. is at the leading edge of a massive vaccine mobilization, with the first batches of Pfizer's shot beginning Tuesday.  Queen Elizabeth II, the nation's 94-year-old monarch, will reportedly get inoculated in the first wave of the jabs in a campaign to reassure the public.

Across the rest of Europe, second waves of coronavirus outbreaks are taking fresh bites out of economic growth.

On Thursday leaders from the 27-nation bloc are huddling for a summit, seeking to end a dispute with non-euro members Poland and Hungary over the terms attached to an historic 1.8 trillion-euro ($2.2 trillion) rescue package, and multi-year budget. The first line of fiscal defense in Europe is still national budgets, and they are under stress. 

Only if they succeed can the European Central Bank, meeting on the same day, have confidence that the monetary stimulus its officials are poised to unveil will have the intended potency.

The role of the ECB in this long slog out of the pandemic trough is to make sure borrowing remains as cheap as possible and that markets don't take fright at the scale of borrowing under way.

A sliver of hope appeared early Monday morning: German industrial production rose for a sixth month in October, suggesting manufacturing has momentum heading into what promises to be a turbulent few months ahead. But Germany is also considering tougher restrictions to curb rising infections.

Brendan Murray in London

Charted Territory

The U.S. trade deficit widened in October as the value of imports climbed to just below pre-pandemic levels, while travel restrictions and consumer wariness continued to depress services exports. The shortfall in trade of goods and services expanded to $63.1 billion, compared with a median estimate for a gap of $64.8 billion in a Bloomberg survey of economists. Combined, the value of U.S. exports and imports climbed to $427 billion, the highest since February, but still down from $469 billion at the end of 2019.

Today's Must Reads

  • New high | China's exports jumped in November by the most since early 2018 as year-end demand surged, pushing the trade surplus to a monthly record. Taiwan exports surged at their fastest pace since February.
  • Trade migraine | Australia issued a warning on trade, saying uncertainties from its souring ties with China and the lingering impact of an earlier drought will push down the value of its agriculture exports.
  • Storage wars | Volkswagen's Porsche unit is changing its supply-chain strategy and opening its own auto-parts storage facilities to cope with shortages amid the Covid-19 pandemic.
  • More targets | The U.S. is preparing to sanction at least a dozen more Chinese officials over their role in the recent disqualification of Hong Kong legislators, according to two people familiar with the plans.
  • Gap persists | Canada's trade deficit came in wider than expected in October as exports remain well below pre-pandemic levels.
  • Getting lit | Christmas tree vendors got a jump on sales this year as buyers looking to chase away pandemic blues started the season early. But freight expenses are up and workers harder to find and for some farmers, what should be a fat holiday may turn out thinner than expected.
  • Baking boom | The Gilchesters Organics flour mill was lucky when a year's worth of paper sacks arrived in February, a month before Britain initially locked down because of the coronavirus. The pressure was in maintaining delivery speed as supplies grew more scarce.

On the Bloomberg Terminal

  • On the horizon | Bloomberg Intelligence breaks down the outlook for shipping markets in 2021. 
  • Still going | The ongoing rebound in South Korea's exports, a bellwether for global trade, suggests external demand is holding up despite a resurgence of coronavirus outbreaks in several major economies, Bloomberg Economics says.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF's analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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