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Investors are growing increasingly hopeful about the economic outlook and next week’s PMIs will tell us whether businesses share their optimism. Central bank minutes will also provide more insight into whether policy makers are encouraged and what it means for monetary policy.
Optimism grows for the US economy as the COVID-19 vaccine rollout appears poised to provide every American who wants to get vaccinated a chance to get one by April. The holiday surge is behind us and cases and hospitalizations continue to trend lower. The South African variant remains the biggest risk as it makes its way across several states. COVID vaccines appear less effective to the South African variant, but optimism remains we won’t see widespread lockdowns.
On the data front much attention will fall on flash PMIs and retail sales. Manufacturing and services PMI readings are expected to soften in the preliminary February readings. Economists are anticipating the first rise in retail sales since September. The FOMC will release the minutes to the January meeting. We’ve heard recently from Powell so the Minutes might only provide limited insights.
A broad selection of economic data points to look for next week including employment, GDP and ZEW survey’s on Tuesday and PMI numbers on Friday. In the middle we have ECB minutes on Thursday which shouldn’t contain any major surprises given the central bank only announced further easing measures in December.
Mario Draghi is set to become the next Italian Prime Minister after receiving the backing of Five Star Movement to form a national unity government. The move means Draghi has the backing of almost all of the major parties. I imagine rallying them going forward won’t be quite so easy.
The UK saw its worst growth since the Great Frost of 1709 last year but there was cause for optimism in the data. The country grew faster than expected in the final quarter and while its annual contraction of 9.9% is down there with the worst, the success of the vaccine rollout means it’s positioned for a strong recovery after the first quarter of this year, which will obviously be poor again as a result of the lockdown.
A number of data releases to keep an eye out for next week including inflation on Wednesday and retail sales and PMIs on Friday.
The lira is starting to stabilize around last summer’s levels again, a sign of the hard work paying off since the central bank steered itself in a new direction under the leadership of Naci Ağbal. CBRT rate decision on Thursday, no change expected.
China is closed until Thursday for the Chinese New Year. No data releases in the coming week.
PBOC is confining USD/CNY to a 6.4000/6.5000 range across the Lunar New Year holiday.
India markets continue to rally post an expansionary budget. India’s Defense Minister announced an agreement with China to disengage forces from the Pangong Tso Lake area on the disputed border. Should be markets positive as wars are very expensive.
A fall in WPI on Monday will further alleviate stagflation fears and will boost local equities.
The Indian Rupee has rallied post the budget and an unchanged RBI pressuring USD/INR which is testing long-term support at 72.75. This has been defended by the central bank previously. A weekly close below 72.75 signals more downside by USD/INR.
Australia & New Zealand
Australian Unemployment and the RBA Minutes are this week’s data highlights, although surging gas prices, and the recovery in iron ore and copper prices are holding the local market’s attention, boosting equities and the Australian Dollar.
US Dollar weakness this week has abruptly changed the technical outlook for both the Australian and New Zealand Dollars. NZD/USD has broken out higher, and AUD/USD is testing the top of its symmetrical triangle signalling potentially strong gains next week.
Heavy data week for Japan with GDP, Industrial Production, Tankan Survey and PMI’s and inflation. GDP and Industrial Production should show a strong recovery with the overall numbers being dragged down by slow domestic consumption, highlighting the two-speed recovery. In the margins it will be equity positive with rallies driven by sentiment and momentum, as they are everywhere.
USD./JPY has abruptly reversed direction like the Antipodeans, as US Dollar weakness returned. USD/JPY failed at its 200-day moving average at 104.65, and has fallen back to its 100-DMA at 104.40, helped along by an easing in US yields post inflation data. The Yen is being entirely driven by US Dollar movements at the moment and will remain so until the US yields stage their next large move, whichever direction that will be.
Investors are growing increasingly hopeful about the economic outlook and next week’s PMIs will tell us whether businesses share their optimism. Central bank minutes will also provide more insight into whether policy makers are encouraged and what it means for monetary policyREAD MORE
A lively start to the year
It’s been an surprisingly lively start to the year, with recent weeks being dominated by retail traders taking on hedge funds and showcasing the power of social media. While that looks to have gone quiet, a repeat performance may not be far away. With the data calendar a little light next week, focus will remain on US stimulus, the vaccine rollout and earnings.
The US economy continues to make progress in the fight against COVID as daily cases have declined for almost a month and vaccination efforts accelerate. The nonfarm payroll report showed that the case for more stimulus remains elevated. On Wednesday, the US consumer price index is expected to show price pressures are mild. The reflation trade at one point will trigger a surge with prices, but that should not derail the Fed’s avoidance in tapering stimulus.
President Joe Biden is interviewed on CBS in his first network TV interview since his inauguration. The focus in the US will remain on COVID vaccine rollouts.
On Monday, the US Senate begins former President Donald Trump’s second impeachment trial. Last month Trump was impeached in a bipartisan vote in the House of Representatives on a charge of inciting the January 6th insurrection at the US Capitol.
Next week is looking a little quiet on the data side, with the most notable release being the new economic forecasts on Thursday. The region is continuing to struggle on the vaccine rollout which could mean longer lockdowns and a slower recovery.
The political story continues to centre around Italy and whether Mario Draghi can form a government at a time of crisis for the country. The country is used to political uncertainty but now is not the time to be without a functioning government. Markets have responded positively to Draghi taking on the job but if he fails to form a government, Italian assets take a hit.
No major surprises from the BoE at its February meeting. The first quarter will see less growth – as you’d expect during the country’s third and longest lockdown – but the recovery will pick up after with growth returning to pre-Covid levels in the first quarter of next year. Negative rates remain a possibility later this year but still an unlikely one with any further easing likely to come from asset purchases and the Term Funding Scheme.
We’ll hear from Governor Andrew Bailey next week, with the most notable data being the GDP reading for the fourth quarter, alongside other lower impact releases.
The lira rebound continued this week as the CBRT stressed its commitment to retaining tighter monetary policy until inflation is back within target, something that will take at least two years. This continues to go against the views of President Erdogan. At this time, investors are at ease with this but there always remains the risk that Erdogan will lose patience over time as the economy suffers from higher rates.
China Inflation and Balance of Trade released Wednesday. Inflation will be closely watched after higher readings from other parts of Asia, Europe and the US. Higher print being equities negative. PBOC continues to subtly withdraw liquidity via the repo rollover supporting the Yuan.
PBOC is confining USD/CNY to a 6.4000/6.5000 range ahead of Lunar New Year. China on holiday for a week starting Thursday.
RBI surprises the market and leaves rates unchanged after the expansionary budget this week. India equities nearly 10% higher this week post-budget. Quiet week ahead with India Inflation and Industrial Production on Friday.
With most of Asia on holiday, the market will remain fixated on the budget-driven equity rally. INR to remain steady on unchanged RBI.
Australia & New Zealand
Australian NAB Business Confidence and New Zealand Food Inflation unlikely to move markets.
The technical picture suggests Australian and New Zealand Dollars at risk of a material downward correction next week due to rising US yields and US Dollar strength. Both have the potential to fall by between 200-300 points.
Japan Current Account and Machine Tool Orders won’t be market-moving. PPI could show signs of imported energy inflations increasing pressure on the JGB’s.
Domestic consumption, constrained as the Covid-19 state of emergencies are extended and expanded. Tokyo Olympics to go ahead with restrictions, removing a key negative risk factor for the domestic economy.
USD/JPY has broken higher through its 100-day moving average at 104.50, for the first time in 7 months. A rise in US yields next week could see USD/JPY rise to 107.00 next week if US Employment data is strong this evening.
It’s been an surprisingly lively start to the year, with recent weeks being dominated by retail traders taking on hedge funds and showcasing the power of social media. While that looks to have gone quiet, a repeat performance may not be far away...READ MORE
Markets wobble amid retail backlash
The last week in the markets has been extremely interesting and highly unusual, to say the least. We’ve long talked about the power of social media and recent events are a prime example of that. While the battle between retail investors and hedge funds may continue to dominate the headlines in the coming weeks, there is plenty more that investors should pay close attention to.
The two big data releases for the US will be the ISM manufacturing and the employment report. The ISM manufacturing reading is expected to show a small decline in January. The US nonfarm payroll report is supposed to show a rebound of 50,000 jobs in January, but it will be difficult as optimism is low for any signs of a rebound in leisure and hospitality jobs.
A busy week in DC will have investors following every incremental update on the COVID relief bill and whether Treasury Secretary Yellen will tweak the strategy with debt issuance. On the stimulus front, lawmakers are early in negotiations so the divide should remain wide on what is an acceptable headline price tag of fiscal support.
Vaccine delays and a public dispute between the European Commission and AstraZeneca dominated much of the past week and we may see more of this going forward, as politicians face a potentially angry electorate. A coordinated response arguably has numerous benefits but delays to regulatory approval and disputes like we’ve seen this week don’t do them any favours. Lockdowns may have to stay in place further into the spring and bring with them economic consequences.
The data this last week was a little better on the growth front but it also covers a time before the more severe lockdowns we’re now seeing. And let’s face it, whether Germany avoids a double dip recession because of 0.1% growth in Q4, or is pushed into one after revisions, doesn’t matter. Next week is littered with low to medium impact data including final PMIs.
Next week’s Bank of England meeting is unlikely to provide anything of note for the markets. The central bank added further asset purchases in November and while the country has gone back into lockdown since – and more severely so – it doesn’t change the outlook dramatically enough to warrant intervention from the central bank any time soon.
Unemployment data for November was better than expected but given the state of the situation now, it’s old news. On a positive note, Covid cases are continuing to come down for a third week and are back at late October levels, when the country went into its second lockdown. There’s also signs of fatalities falling. A long road ahead still but the vaccine rollout is progressing well and lockdowns working. Schools won’t be opening until March and the rest of the country will gradually follow after.
Monetary policy will remain tight until at least 2023, CBRT Governor Naci Agbal claimed this week, at which point inflation should be around its 5% target. The message was well received by the markets and should ensure investors remain on board, as long as he isn’t forced out in the interim, given his views conflict with those of President Erdogan. For now, investors are happy and the lira’s performance is reflective of this.
China official PMI’s are released on Sunday. A large divergence creates a binary volatility outcome on Monday morning, focused on AUD and NZD and Australia and China equities.
The PBOC continues to withdraw liquidity via the MLF’s while adding it via 7 and 14-day repos. That is pushing funing costs higher with Shibor continuing to squeeze. If Shibor ramps higher next week, China equities will feel the heat.
Huge week as India’s 2021 budget is announced on Monday with the RBI rate decision on Friday.
India’s fiscal deficit exploded to above 7% in 2020, but any fiscal tightening for 2021, or increased taxation, could see INR and Indian equities fall quite hard. With inflation back under 6.0%, the odds of rate cuts resuming have increased. Much will depend on the budget and the market’s response. Rut cuts would be local equity positive.
Australia & New Zealand
Heavy data week in Australia with PMI’s and RBA rate decision on Tuesday. Policy will remain unchanged but the market will be closely monitoring the statement and press conference for economic outlook and potential changes to dovish guidance. Highly unlikely, but a less dovish RBA would be negative for equities.
The AUD and NZD continue to hover just above medium-term supports. A squeeze higher globally by the US Dollar could see both stage potentially large downward corrections. The progress of US fiscal stimulus and the trajectory of vaccinations will be the main drivers with their high beta to the global recovery.
Jibun PMI’s and Household Spending will show a darkening domestic outlook as Covid-19 restrictions sap confidence. Potentially negative Japan equities in the short-term, although the Nikkei has been following the S&P 500 closely of late.
External factors aside, rumours are swirling that the Tokyo Olympics are going to be cancelled. That would be a strong short-term negative for Japanese markets and will see 2021 GDP growth revised lower.
USD/JPY has broken higher through a multi-month downward channel at 104.10 and through its 100-day moving average at 104.50, for the first time in 7 months. A rise in US yields next week, and/or a rise in the US Dollar could see USD/JPY rise to 107.00 quickly.
The last week in the markets has been extremely interesting and highly unusual, to say the least. We’ve long talked about the power of social media and recent events are a prime example of that...READ MORE
Big tech in focus
Earnings season is up and running and next week will see some huge names reporting on the fourth quarter including Facebook, Apple and Tesla. Covid-19 is becoming more of a focus for investors as lockdowns take their toll and it becomes clear that restrictions won’t be easing any time soon.
The main event in the US is the Fed’s policy meeting. After several months of ultra-accomodation, the Fed seems to be inundated with questions on when is the time to taper. Fed Chair Powell earlier in the month signal now is not the time to talk about exiting. The Fed will likely reiterate their support for fiscal support and remind markets of the short-term risks. Inflation signs have picked up but are not yet at a worrisome level.
Big tech has led the recent charge higher for US stocks and Wednesday after the close will likely let us know if investors are still on board. Huge earnings will come from Facebook, Apple and Tesla.
President Biden quickly tries to deliver on his national strategy to combat COVID-19. Some states are trying to ramp up more aggressive testing and makeup for shortfalls with vaccines. Negotiations also begin between Democrats and Republicans on Biden’s $1.9 trillion proposal for a stimulus relief package.
There were no surprises from the ECB after its January meeting, with the central bank reaffirming its commitment to supporting the economy through the crisis, acknowledging the risks posed by the new strains and lockdowns. The ECB announced a raft of new measures in December so further stimulus isn’t likely any time soon.
Next week is mostly tier two and three data, including flash GDP readings from Spain and France. Ifo/ Gfk surveys and unemployment data from Germany are also noteworthy. We’ll also hear from Christine Lagarde on Monday.
The January lockdown has dealt another blow to the economy, far more so than November given the added severity. Cases are coming down though and have been for two weeks but reports appear to be suggesting the country isn’t coming out any time soon. And when it does, it will be very gradual. It could be the summer until everything is up and running again.
The PMIs suggest the economy is in for a rough ride over the coming months. The only data of note next week is the jobs report for November, with the unemployment rate seen jumping to 5.1%.
The CBRT reaffirmed its commitment to tight monetary policy at the January meeting, a clear sign of its determination to keep financial markets on board. This comes after President Erdogan once again repeated his long-held view that higher interest rates spur inflation. This will make investors increasingly nervous if the President is believed to be interfering with monetary policy. It won’t take much for them to flee once again and remains a major downside risk for the currency.
The “Jack’s back” China tech rally has fizzled quickly on both the Mainland and Hong Kong. Government remains vocal about antitrust restrictions on Alibaba and Ant Financial with the latter’s valuation plummeting. China investors appear nervous about valuations at these levels.
China has widened lockdowns outside of Beijing and Hong Kong has locked down part of Kowloon weighing on China markets. An escalation will weigh on Greater China equities next week.
China 1 and 5-year Loan Prime Rates were unchanged although the PBOC appears to be quietly reigning in liquidity via the repo market. Should keep the Yuan firm at present levels as leaving US events to dictate EM direction.
Little sign of President Biden’s approach to China. Most of the potential bad news is baked in here from Trump, and markets seem unconcerned in China for now.
Final 2020 GDP released on Friday. Overshadowed by increasing concerns over Non-Bank Financial sectors bad debts. Persistently high inflation (notably food) threatens to temper India’s post-Covid recovery. India markets will move to the nuances of US stimulus progress this week and the FOMC.
Australia & New Zealand
Covid-19 fears have receded as an outbreak in NSW brought under control and Brisbane and Victoria State report no new cases.
Data highlights include Official Inflation and NAB Business Confidence but markets in Australia are moving to external events. Namely US fiscal stimulus and the FOMC this week.
AUD/USD and NZD/USD have recovered their poise as markets loaded up on global recovery/US stimulus positioning. Both are acutely vulnerable to signs that Senate Republicans will filibuster the stimulus package.
Bank of Japan unchanged as expected, lifted 2021 GDP outlook. Markets have taken that with a grain of salt. Retail Sales, Tokyo CPI and Industrial Production all expected to print lower with Japan’s lockdown lite another blow to the domestic economy.
External factors aside, rumours are swirling that the Tokyo Olympics are going to be cancelled. That would be a strong short-term negative for Japanese markets and will see 2021 GDP growth revised lower.
USD/JPY fell after a pre-BOJ spike in JGB’s and an easing of US 10-year yields. USD/JPY is now in the middle of its one-month 102.50 to 104.50 range. Next direction dictated by US yields next week and the tone of the FOMC meeting.
Earnings season is up and running and next week will see some huge names reporting on the fourth quarter including Facebook, Apple and Tesla. Covid-19 is becoming more of a focus for investors as lockdowns take their toll and it becomes clear that restrictions won’t be easing any time soon.Fed to reiterate support for economy...READ MORE
We’re not there yet
We are now heading into what would typically be a quiet time of year when everyone spends time with their loved ones and market activity is more muted. This isn’t a normal year though and while volumes may be low, activity will be anything but.
Congress appears to be finalizing the final details of a coronavirus relief bill that will include stimulus checks. The need for more support is still warranted despite recent improvements with the economy. The short-term outlook will likely be covered with extended lockdowns that will cripple many small businesses. Support from the both the Fed and the Biden administration suggest stimulus efforts will remain in place for the early part of 2021.
On the data front, much attention will be on the final third quarter GDP readings, December consumer confidence, preliminary November durable goods data, and weekly jobless claims. The economy is starting to show deeper signs of slowdown and that could increase expectations that the next nonfarm payroll report will see job losses.
It is all about the Georgia Senate runoffs. The latest polls show Republican Sen. David Perdue has a 48.9% to 48.2% edge against Democrat Jon Ossoff and Republican Sen. Kelly Loeffler is tied with Democrat Raphael Warnock. Immediately after Election Day it seemed Democrats failed to capitalize on delivering a blue wave, but that might not be the case. Both races are too close to call and no one can be confident on what turnout to expect. The base case is still that Republicans will win one of the Senate races and secure control of the Senate but that is no longer a foregone conclusion.
The region is slowly going into lockdown as cases surge across the continent. The ECB provided more stimulus earlier this month so will likely be quiet for a while now. Brexit still a risk, with differences remaining.
Significant weekend risk again after the European Parliament insisted on a deal being agreed by Sunday, after which it won’t be ratified this year. That’s about as firm a deadline as we’ve seen so far and could force the necessary compromises to get it over the line.
The only caveat being the possibility of a provisional application which could tie us over until the EP approves in January. I can’t help but think after all these years, that’s the only way it’s going to go, which means this could go beyond Christmas. It wouldn’t be Brexit if it didn’t.
With more regions being added to the list of tier three and households being allowed to mix at Christmas, there’s a sense of inevitability about another lockdown in January, maybe going into February. Brexit is the key risk for the UK, with Covid vaccinations now underway.
A normalization of policy action has helped the lira rebound in the final months of the year, with Turkey going into the new year with a new central bank head and finance minister and higher interest rates. This may continue for some time, reducing some downside risks for the currency. But this is a currency that never seems too far away from a crisis. The rebuild in underway.
China Loan Prime Rates decision Monday. It would be a huge surprise if rates were cut with PBOC keeping liquidity tight as part of the deleveraging process. We expect the next move in rates to be higher at the end of 2021.
No other significant data.
No significant data this week.
Australia/New Zealand travel bubble already in doubt after Sydney Covid-19 outbreak. Potentially weighing on consumer discretionary and leisure/tourism equities.
The New Zealand Dollar remains very strong as a proxy to the 2021 global recovery.
Country effectively shuts for two weeks from this Thursday.
Australian equities under pressure on Friday after Covid-19 outbreak in Sydney. States have rapidly reimposed movement restrictions with New South Wales.
Both Australian equities and the Australian Dollar could face significant pressure next week if the Covid-19 situation in Sydney escalates rapidly.
The Bank of Japan meeting was a non-event. Japan releases Retail Sales and Construction Orders on Christmas Day as Japan markets are open. Large misses have caused volatility in USD/JPY on Christmas Day due to restricted liquidity.
Equities and currency otherwise at the mercy of US fiscal progress in US Congress.
We are now heading into what would typically be a quiet time of year when everyone spends time with their loved ones and market activity is more muted. This isn’t a normal year though and while volumes may be low, activity will be anything but...READ MORE
The Federal Reserve is set to leave its interest rate unchanged in the last meeting of 2020 while new forecasts will likely be more upbeat, signaling no urgency for further support. Markets may be disappointed and drop while the dollar could rise.
“If the Federal Reserve only pays tribute to the hardship but focuses on the upbeat recovery and vaccine hopes, markets may drop – despite the fact that officials hinted that the Fed is unlikely to act. The writing is on the wall, but there seems to be an unwillingness to read it. In this scenario, the safe-haven US dollar has room to rise while stocks retreat.”
“In case the Fed surprises by hinting that additional stimulus will likely come in the next meeting – just after President-elect Joe Biden's inauguration – markets would likely surge and the dollar would resume its decline. This second scenario has a lower probability.”
“If the bank sees the glass half-empty and shocks with additional QE, a Christmas party would erupt in equities and the greenback would free-fall – yet the chances are low.”
The Federal Reserve is set to leave its interest rate unchanged in the last meeting of 2020 while new forecasts will likely be more upbeat, signaling no urgency for further support. Markets may be disappointed and drop while the dollar could rise...READ MORE
Gold (XAU/USD) consolidates Tuesday’s surge, trading close to the weekly tops just below the $1860 barrier.
The yellow metal rallied nearly 1% a day before and now looks to build on the upside amid rising expectations that the US lawmakers will clinch the much-awaited coronavirus relief aid package.
However, the XAU bulls remain mindful of the Fed decision due later on Wednesday, with likely upbeat projections from the American central bank seen hurting the sentiment around gold.
From a technical perspective, the four-hour (4H) chart shows that gold is struggling to recapture the horizontal 200-simple moving average (SMA) at $1859.
Acceptance above the latter could prompt the bulls to resume its upbeat momentum, in the wake of a descending triangle breakout confirmed early Tuesday.
The next relevant resistance is seen at $1875, the December 8 high. The bulls could then eye a test of the $1900 mark.
The Relative Strength Index (RSI) sits beneath the overbought territory, near 67.00, suggesting that there is scope for further upside.
On the flip side, the horizontal 50-SMA at $1845 could be back on the sellers’ radars. That level was the previous crucial resistance.
Further south, the 21-SMA support at $1840 could likely be probed.
The yellow metal rallied nearly 1% a day before and now looks to build on the upside amid rising expectations that the US lawmakers will clinch the much-awaited coronavirus relief aid package...READ MORE
Here is what you need to know on Wednesday, December 16:
The dollar remains on the back foot after a cheerful Tuesday in markets. The upcoming approval of the Moderna vaccine, progress on Brexit, and Republicans' call to seal a stimulus have all resulted in a risk-on atmosphere. Investors eye changes in the Federal Reserve's bond-buying scheme in its last decision of the year.
US stimulus: Senate Majority Leader Mitch McConnell noted progress in stimulus talks with Democrats and urged all lawmakers to come together around a deal. The powerful politician had been reluctant to back an accord and the new proposals are yet to receive the nod from House Speaker Nancy Pelosi. Investors expect another relief package when President-elect Joe Biden enters the office. McConnell also broke his silence on the elections and congratulated Biden, relieving some political pressure.
The Federal Reserve is set to announce its final decision of the year and markets are watching changes in its bond-buying scheme amid the recent virus surge and economic slowdown. Nevertheless, the bank may opt to wait until the next meeting. Special attention will be given to the new economic forecasts, especially growth and employment.
Gold is holding onto its gains above $1,850 in response to fiscal stimulus news and hopes for monetary stimulus.
Ahead of the Fed, US Retail Sales figures for November are set to rock markets as consumption is a critical component of the world's largest economy. Headline sales are forecast to drop while the Control Group is set to edge higher.
Another figure to watch is Markit's preliminary Purchasing Managers' Indexes for November, a forward-looking indicator of the world's largest economy.
Intense Brexit talks continue in Brussels and negotiators are quiet, a sign of progress. Reports in London suggest substantial progress on a Level-Playing Field while the fate of fisheries remains contentious. At some point, rumors of an imminent deal surfaced, but they failed to materialize. GBP/USD is holding onto its gains.
UK labor figures were mixed with a low unemployment rate yet a substantial jump in the jobless claims. Inflation missed expectations with an increase of 0.3% yearly against 0.6% expected.
Vaccine optimism: The US Food and Drugs Administration released a report confirming the efficacy and safety of Moderna's jabs. The publication serves as the first stage ahead of authorization, which is due toward the end of the week. The US and the UK are already administering the Pfizer/BioNTech inoculation and the European regulator has brought the approval of this vaccine forward to December 21.
Eurozone: Markit's preliminary PMIs for November are due out on Wednesday and will likely reflect an ongoing deterioration in sentiment amid the winter covid wave. Germany enters a strict nationwide lockdown on Wednesday and other countries are also either imposing new limits or considering them ahead of Christmas. EUR/USD is torn between the upbeat market mood and the grim reality on the ground.
WTI Crude Oil is holding onto its gains above $47 amid the upbeat market mood and ahead of inventories data later in the day.
Cryptocurrencies are creeping higher once again, with Bitcoin advancing above $19,000.
he dollar remains on the back foot after a cheerful Tuesday in markets. The upcoming approval of the Moderna vaccine, progress on Brexit, and Republicans' call to seal a stimulus have all resulted in a risk-on atmosphere. Investors eye changes in the Federal Reserve's bond-buying scheme in its last decision of the year...READ MORE
Manufacturing Sales in Canada rose by 0.3% to $54.1 billion in October, the data published by Statistics Canada showed on Tuesday. This reading followed September's increase of 2.2% and fell short of the market expectation of 0.3%.
"Manufacturing sales in constant dollars were unchanged, indicating that the increase in October was driven entirely by higher prices," Statistics Canada further noted in its press release.
The CAD stays resilient against the greenback despite the uninspiring data. As of writing, the USD/CAD pair was down 0.17% on a daily basis at 1.2738.
Manufacturing Sales in Canada rose by 0.3% to $54.1 billion in October, the data published by Statistics Canada showed on Tuesday. This reading followed September's increase of 2.2% and fell short of the market expectation of 0.3%...READ MORE
The GBP/USD pair rallied over 80 pips from intraday swing lows and refreshed daily tops, around the 1.3365-70 region during the mid-European session.
The pair witnessed some selling during the early part of the trading action on Tuesday, albeit showed some resilience at lower levels and managed to attract some dip-buying near the 1.3280 region. The US dollar languished near two-and-half-year lows amid hopes for additional US fiscal stimulus, which, in turn, was seen as a key factor that extended some support to the GBP/USD pair.
However, the lack of progress on post-Brexit trade talks tempered investors' optimism that a deal can still be reached and might hold the GBP bulls from placing aggressive bets. It is worth recalling that the EU's chief Brexit negotiator, Michel Barnier reiterated on Monday that there has been limited progress on enforcement mechanisms and disagreement on State Aid.
Apart from this, the imposition of stricter lockdown in London might further cap gains for the GBP/USD pair. The ever-increasing cases and the discovery of a new variant of the coronavirus seemed to have overshadowed the optimism about the rollout of COVID-19 vaccines. This makes it prudent to wait for some follow-through buying before positioning for any further appreciating move.
Market participants now look forward to the US economic docket – featuring the second-tier releases of the Empire State Manufacturing Index and Industrial Production figures. The data, along with the US stimulus headlines and the broader market risk sentiment, might influence the USD price dynamics and produce some meaningful trading opportunities around the GBP/USD pair.
The GBP/USD pair rallied over 80 pips from intraday swing lows and refreshed daily tops, around the 1.3365-70 region during the mid-European session...READ MORE
Here is what you need to know on Tuesday, December 15:
The dollar is stable after gaining late on Monday amid a minor drop in markets. Investors still await a US fiscal deal after Joe Biden was formally nominated President while intense Brexit talks continue. Lockdowns and vaccine developments are eyed.
US fiscal stimulus: US Senate Majority Leader Mitch McConnel said it is time to find consensus on COVID-19 relief He has so far been reluctant to move. House Speaker Nancy Pelosi told Treasury Secretary Steven Mnuchin that the remaining issues could be resolved quickly. The optimism helped gold come off the lows. The Electoral College formalized President-elect Joe Biden's victory in a smooth process.
Brexit: Intense deliberations continue in Brussels with cautious optimism expressed from both sides. Chief EU Negotiator Michel Barnier reportedly told envoys that there is a "narrow path" to reach a deal. The transition period expires in 16 days and GBP/USD is trading off the highs seen on Monday.
London enters Tier 3 lockdown restrictions amid growing infections and concerns about a new, more contagious strain of coronavirus. According to Health Secretary Matt Hancock, there is no evidence that this variant is more deadly or vaccine-resistant. UK jobs figures are set to show an increase in unemployment:
Europe locking down: Germany enters a hard holiday shuttering on Wednesday and neighbors Czechia and the Netherlands are also tightening their screws while Italy is also considering measures to curb the spread of the disease.
AUD/USD has been standing out with a drop, following reports that China would ban Australian coal. The Reserve Bank of Australia's meeting minutes showed that the RBA has an open door to more bond-buying in 2021.
Chinese Retail Sales and Industrial Production accelerated their gains in November, showing resilience on the global scene. It is set to be the sole major economy to grow in 2020.
Investors await the Federal Reserve's final rate decision of the year, with chances of imminent new stimulus low despite weak jobs figures. US industrial output and the Empire State Manufacturing Index are on the docket on Tuesday.
Oil prices remain elevated despite a ramp-up in Libyan production with WTI holding above $46. Cryptocurrencies have stabilized with Bitcoin consolidating above $19,000.
The dollar is stable after gaining late on Monday amid a minor drop in markets. Investors still await a US fiscal deal after Joe Biden was formally nominated President while intense Brexit talks continue. Lockdowns and vaccine developments are eyed...READ MORE
The EUR/USD pair pulled back sharply during the last hours amid a really of the US dollar across the board. It is dropped from 1.2176, the highest level in a week to 1.2126. The euro erased most of its daily gains and as of writing it trades at 1.2135, above Friday’s close but far from the top.
The DXY trimmed losses and rose back above 90.70 after falling to the lowest since 2018 near 90.30. The recovery of the dollar gained speed amid a reversal in Wall Street. The Dow Jones is still up by 0.48% but off highs while the S&P 500 gains 0.55%. US yields remain higher for the day.
The first person in the US received the COVID-19 vaccine. Optimism around the outlook for the pandemic eased on new about lockdowns in London and New York.
EUR/USD fails at 1.2170
The euro climbed earlier to test the 2020 highs but after matching the December high at the 1.2175 zone pulled back. The EUR/USD pair continues to consolidate at the top, unable to make a clear break above 1.2170 neither below 1.2070.
The main trend points to the upside. The euro needs to break clearly the 1.2170 to open the doors to more gains.
The EUR/USD pair pulled back sharply during the last hours amid a really of the US dollar across the board. It is dropped from 1.2176, the highest level in a week to 1.2126. The euro erased most of its daily gains and as of writing it trades at 1.2135, above Friday’s close but far from the top....READ MORE
Here is what you need to know on Monday, December 14:
Markets are moving higher as Brexit and US stimulus talks continue ahead of the first vaccinations against COVID-19 in the US.
US Stimulus: A bipartisan group of lawmakers is set to present two separate bills, one including liability protection for companies and the other without, a move meant to break stalled negotiations. Gold has failed to rise in response to the news.
Brexit: UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed to extend talks beyond the deadline and "go the extra mile." According to reports, Britain has put forward a new proposal for a Level-Playing Field (LFP) one of the most contentious topics. GBP/USD has surged above 1.33 in response to ongoing deliberations.
Germany has announced severe restrictions ahead of the Christmas holidays as its caseload remains high. Previously, France extended its nationwide lockdown. Nevertheless, EUR/USD is moving higher amid the dual set of talks.
The US begins vaccinating its population on Monday. The White House considered vaccinating outgoing President Donald Trump and his staff in the first round and later backed down. The Electoral College is set to ratify President-elect Joe Biden's victory during the day, following the Supreme Court's rejection on Friday of yet another attempt by Trump to overturn the elections.
AUD/USD was temporarily hit by a drop in iron ore prices following comments from China's Iron and Steel Association saying the metal's price has "diverged from fundamentals.
Cryptocurrencies are consolidating fresh gains, with Bitcoin changing hands above $19,000.
Later in the week, the Federal Reserve and the Bank of England announce their final decisions for 2020. US Retail Sales are also eyed.
Markets are moving higher as Brexit and US stimulus talks continue ahead of the first vaccinations against COVID-19 in the US...READ MORE
Two down, two to go
The month of compromise has delivered two so far. OPEC+ agreed on output targets for next year while the EU27 gave their backing to the 2021-27 budget and recovery fund. That just leaves Brexit and US fiscal stimulus outstanding, with a positive outcome in both cases making this a rather remarkable end to an extraordinary year.
It is all about stimulus this week. Risk appetite will take its cues from the Fed and possibly from Congress. The Fed could deliver fresh measures following softer economic data and no fiscal aid from Congress. Expectations are growing for the Fed to extend the average maturity of their Treasury purchases. The risk of Congress going home for the holidays without delivering a rescue bill is growing by the day. The key sticking points remain liability protections and aid to state and local governments.
On the data front, the flash PMI readings could show modest weakness in both the manufacturing and service sectors. Both retail sales and industrial production in November are expected to decline, while housing data appears poised to steady,
The electoral college will gather on Monday and is expected to formalize Joe Biden’s presidential victory. The focus will heavily remain on the Georgia Senate runoff-races. Democrats need to win both seats to have a split Senate, with VP Harris having the tie-breaking vote. Most political experts expect the Republicans to win at least one of the races and keep control of the Senate.
It’s been a very good week for the EU. The ECB announced provided fresh stimulus for the bloc as lockdowns wreak havoc on the economy once more. The 27 members signed off on the EU budget and recovery fund after Hungary and Poland dropped their opposition to it. It would have been a perfect week but for the fact that Brexit negotiations haven’t really progressed, despite face to face talks between Boris Johnson and Ursula von der Leyen.
Neither side is willing to call it quits on talks but there’s no doubting that no-deal Brexit odds have significantly increased this week and traders are starting to feel the heat. Volatility in the pound has been on the rise and it has fallen more than 2% against the dollar this week. Leaders have pledged to make a firm decision on the negotiations by Sunday but since when do deadlines matter when it comes to Brexit? There’s only one deadline that’s set in stone (ish) and that’s 31 December. Still, this claim means this weekend carries heightened market risk.
The economy grew at its slowest monthly pace since May in October and November is expected to be far worse as a result of the lockdown. Growth of 0.4% left the economy 7.9% smaller than it was before the pandemic and that’s before the lockdown kicked in. The Bank of England last month increased its bond buying program in an attempt to support the economy through the second wave but should no-deal Brexit become a reality, more will have to be done on the fiscal and monetary side. This is the worst time to be facing no-deal Brexit which is partly why I still believe a deal will be reached. It’s just not yet a minute to midnight.
The lira has stabilized somewhat over the last month or so but did slide at one stage today, going above 8 to the dollar, before paring losses. The move came as the US prepared to sanction Turkey over its purchase of Russian S-400 air defence systems last year. The sanction may turn out to be only minor though and, ultimately, it will soon be Joe Biden’s problem, who may choose to push back harder, regardless.
China stocks finished the week under pressure as the PBOC leaves liquidity tight and it is swept by a wave of corporate defaults. New sanctions on China officials and telcos by the US continues to muddy the waters, with China detaining a Bloomberg reporter in Beijing this week. That will continue to weigh on China stocks, which will underperform versus Asia next week.
China’s Industrial Production and Retail Sales on Wednesday are expected to be unchanged from October’s numbers. That may escalate concerns that China’s 2020 recovery story is running out of steam, further dampening equities, although the Yuan should remain strong on liquidity and interest rate carry.
India releases WPI Inflation on Monday, which is expected to print at 7.20%, just above the RBI’s target of 5-7%. That will raise a glimmer of hope that the RBI will cut rates at its next meeting to support growth, despite the stagflation environment. That should be supportive of Indian equities.
PM Modi still faces massive protests over the new farmers bill, which may see the Rupee’s recent rally slow. Otherwise, events internationally will drive moves in most developing markets.
The New Zealand Dollar has rallied strongly as a pro-cyclical recovery play for 2021. Having broken 0.7000, it now targets 0.7300 in the coming weeks. Expect more noise about the currency and the spectre of negative rates from the RBNZ if the rally continues to accelerate.
Q3 GDP on Wednesday will be old news, with markets focused on the November Balance of Trade on Thursday. New Zealand’s recovery could see exports surprising to the upside, boosting the currency. On the import side, severe port congestion could lower the headline import number.
The global commodity rally and vaccine-led 2021 cyclical recovery play have been a huge boost to the Australian Dollar as a proxy for world trade. AUD/USD has risen rapidly through 0.7500 and now targets 0.7800 this week. The deteriorating relations between China and Australia continue to have no effect on the AUD or Australian equities, with Australian domestic data continuing to impressively outperform.
Talk is increasing of an Australia/New Zealand travel bubble which would boost equities on both sides of the Tasman Sea, as well as the currencies. Queensland is the latest state to announce yesterday that Kiwis can travel without quarantine. Unfortunately the travel bubbles are still asymmetric for now.
PMI’s on Wednesday should show confidence continuing to increase. Key data is Employment on Thursday after October’s blow-out 179,000 job increase. November will be lower but a still respectable 50,000 jobs. Risks are skewed to another upside surprise, boosting the AUD and local equities.
As long as the global recovery trade retains momentum in international markets, and iron ore and copper prices elevated, Australian equities and the currency will remain investor favourites.
A heavy data week beckons for Japan with the Tanken survey on Monday expected to remain negative, but improve over October’s number. Balance of Trade and PMI’s follow on Wednesday, with increasing Covid-19 restrictions and concerns set to see imports fall markedly, and forward sentiment sour. That may weigh on Japan equities mid-week ahead of the FOMC decision in the US.
The Bank of Japan meets on Friday with rates to remain unchanged, but the Bank expected to announce an increase in asset buying and lending facilities. That would dovetail in with last week’s supplementary budget and assuming no surprises from the Federal Reserve, see Japan equities rally into the end of the week.
The MoF and BoJ will be watching the recent rally on the Japanese Yen with concern. Friday may see some currency rhetoric from the BoJ if USD/JPY has fallen to 103.00 or lower, which could see a spike higher.
Key Economic Events
Sunday, December 13th
– The latest deadline for post-Brexit trade talks with the EU. Very large gaps remain and no-deal Brexit risks have returned
Monday, December 14th
– U.S. Electoral College to vote for the next U.S. president likely ending President Donald Trump’s legal challenges
– Monthly OPEC Oil Market Report is released
Japan Tankan manufacturing index, industrial production, tertiary industry index, capacity utilization
India wholesale prices, CPI
Turkey industrial production
South Africa consumer confidence
Hong Kong industrial production
Tuesday, December 15th
– Swiss government publishes economic forecasts.
– Bank of Canada Governor Tiff Macklem speaks
– Bank of Finland Governor Rehn presents the central bank’s forecasts for the Finnish economy.
– Apple launches its $549 over-ear headphones
Economic data and rate decisions
US Dec Empire manufacturing 7.5 estimate v 6.3 prior, industrial production, TIC flows
Canada housing starts, existing home sales, manufacturing sales
New Zealand Westpac consumer confidence
Australia ANZ consumer confidence, RBA meeting minutes
China Nov industrial production y/y: 7.0% estimate v 6.9% prior, retail sales y/y: 5.0% estimate v 4.3% prior, fixed assets, jobless rate
Hungary rate decision expected to see interest rate and overnight deposit rate kept unchanged.
India Trade data
Wednesday, December 16th
– Fed Day. The Fed will address the recent weakness in the economy and could finally adopt yield curve control. To promote growth and inflation the Fed should shift their purchases to the longer end of the curve
– The UK government to update the regional tiers for coronavirus restrictions
US Nov retail sales m/m: -0.2% estimate v 0.3% prior, Dec Prelim Markit manufacturing PMI: 55.8 estimate v 56.7 prior
Canada wholesale sales, CPI
New Zealand BoP, current account GDP ratio
Euro-area Markit PMIs
UK CPI, Markit PMIs
Australia Markit PMIs, Westpac leading index
Japan trade, Jibun Bank PMIs
EIA crude oil inventory report
Thursday, December 17th
– Bank of England will keep policy unchanged and address the current pressures Brexit is having on the economy
– The FDA panel will review Moderna’s Covid-19 vaccine. Many are expecting the vaccine to get the greenlight with immunizations starting later in the week
Economic data and rate decisions
US initial jobless claims, building permits, housing starts
New Zealand GDP
Singapore non-oil domestic exports, electronic exports
Swiss National Bank to keep interest rates steady and reiterate pledge to prevent franc from appreciating too much
Czech rate decision is expected to see the repurchase remain steady at 0.25%.
Norway central bank (Norges) expected to keep benchmark interest unchanged even as the growth outlook deteriorates.
Mexico central bank expected to keep overnight rate unchanged at 4.25%.
Hong Kong unemployment, composite interest rate
France manufacturing confidence
Friday, December 18th
– Bank of Russia expected to keep Key Rate unchanged at 4.25%. Governor Elvira Nabiullina could surprise markets with a rate cut to 4.00%
– Bank of Japan to keep monetary policy unchanged
US leading index, current account balance, Baker Hughes rig count
Canada retail sales
New Zealand ANZ business confidence, trade
Sovereign Rating Upgrades
– Cyprus (Moody’s)
The month of compromise has delivered two so far. OPEC+ agreed on output targets for next year while the EU27 gave their backing to the 2021-27 budget and recovery fund. That just leaves Brexit and US fiscal stimulus outstanding, with a positive outcome in both cases making this a rather ...READ MORE
The European Central Bank (ECB) added €500 billion to QE and will run the program into 2022. Weak language on the exchange rate also boosts the euro. More EUR/USD gains are likely.
“The ECB added €500 billion to its Pandemic Emergency Purchase Program, as expected, but surprised by extending the scheme all the way to March 2022. Investors were also comforted by the lack of language change regarding the exchange rate.”
“Christine Lagarde, President of the ECB, was only marginally more dovish in her press conference, responding to a question by saying the bank is monitoring the euro ‘very carefully.’ She also stressed that the bank has the option to cut rates, a specter that scares markets, but that option is always there – it was not an imminent hint of action. Overall, the ECB delivered on its promises without trying to lower the euro – a win-win for EUR/USD.”
“US weekly jobless claims leaped to 853,000, a worrying sign. The data may push Congress to agree on a stimulus package, yet negotiations have yet to yield fruit.”
“Resistance awaits at the 2020 high of 1.2177. The next levels to watch are 1.22 and 1.2250. Support awaits at 1.21, 1.2075 and 1.2060.”
The European Central Bank (ECB) added €500 billion to QE and will run the program into 2022. Weak language on the exchange rate also boosts the euro. More EUR/USD gains are likely.READ MORE