The primary US equity markets, the SPX 500, DJIA 30 and NASDAQ 100 all printed record highs during the first week’s trading of 2021. The reasons were various: the Biden-Harris inauguration approaching, the Senate run-off providing more certainty to the government and law-making process, and progress on vaccine development, although the vaccine rollouts worldwide still represent logistical problems.
The vision of stability the impending Democratic government has created has calmed investor mood. Confidence has developed that further stimulus form the Fed and US government will get created, which has generated the risk-on market mood.
NASDAQ 100 breaches 13,000 level
On Thursday, January 7, the NASDAQ finally burst through the 13,000 handle-round number for the first time in the index’s history. The breach of the level became heralded in the media as the founder of Tesla, Elon Musk, was named the world’s richest man, worth an astounding $180b.
Investors and traders of Bitcoin and other crypto coins had reasons to cheer during the week as BTC breached the $40,000 level. It has now doubled in price in a month. The reasons given include the virtual currency being a hedge versus inflation, a worthwhile investment when deposit accounts give you close to zero returns, and the mining of BTC approaching its mathematical end. Or it could be hype based on irrational exuberance.
US dollar stabilises in January 2021
The US dollar has experienced a modest recovery so far in 2021, the dollar index DXY has crept across the 90.00 line and is up 0.12% so far in the year. Versus both antipodean currencies, NZD and AUD, the US dollar is down approximately -0.75%. USD is close to level for the year-to-date versus its other main peers, except for sterling, GBP/USD is down -0.68% as the reality of Brexit begins to hit.
Trading in EUR, GBP and USD has been tricky during the first week of 2021. The daily price action has been sporadic, and medium-term trends in the major currency pairs have proven difficult to identify.
However, USD/JPY has now breached the 50 DMA on the daily timeframe, suggesting a bullish swing trend may be developing, a theory supported by the bullish Heikin-Ashi bars over recent days. The battle of Brexit, identified by EUR/GBP’s value, is best illustrated by the 100 and 50 DMAs being close to convergence.
Disappointing USA jobs data fails to dampen investor sentiment
The prominent fundamental economic data for the USA this week has been private job numbers, unemployment claims and the NFP number. The ADP private jobs number came in at -123K, while the weekly unemployment claims remained close to the 800K level. When writing this update, Reuters forecast the NFP number to come in at 70K on Friday 8, the worst job creation number since the beginning of wave 1 of the COVID-19 pandemic.
Such figures would have investors anxious regarding the US economy’s overall health in any other era. But with the impending roll-out of the vaccines, investors and traders are looking past the disappointing jobs data, and towards governments and central banks rebuilding the western hemisphere’s economy during 2021 and 2022.
Pandemic lockdowns have limited impact on financial equity markets
Lockdowns hold the key to a sustained recovery. Still, investors in stock remain unconcerned because if central banks and governments continue to indulge in stimuli or asset purchasing through quantitative easing, markets will rise.
For example, the UK government announced a harsh lockdown in the first week of January, and retail footfall collapsed by close on 50% in the primary shopping weeks of December compared to 2019. The forecast is that the real level of UK unemployment will double, and a double-dip recession will occur by Q2. Meanwhile, Brexit will slowly begin to cause continual chaos at ports.
But the leading index the FTSE 100 is currently 6.00% up in January after the Bank of England and the UK Chancellor announced further support when necessary. In truth, many FTSE 100 quoted firms are not UK based, but optimism in UK investments remains robust despite the apparent challenges.
Oil, copper and precious metals could point to where global sentiment is at
Often referred to as “doctor copper” because it records the global economy’s health, copper reached an eight-year high this week. WTI has risen sharply too, breaching the $50 a barrel cost for the first time since March 2020. Silver and gold also rose and whilst precious metals are speculative assets they’re also heavily used in industrial production.
All the commodities named above get classed as thermometers taking the temperature of the global economy. Europe and The Americas are the epicentre of the COVID-19 crisis and European and The Americas GDP collapsed during 2020. In contrast, China and other Asian countries powered ahead in 2020, with China’s GDP growth at 4.90% in 2020. Asia is arguably the engine of global growth, so commodities’ futures prices have risen.
The week ahead on the economic calendar
On Tuesday the latest JOLTS job openings in the USA get published. The expectation is for a fall to 6.3m. Crude oil stocks are forecast to show a further fall which could impact the price of a barrel of oil.
Wednesday sees the publication of industrial production figures for the Eurozone. The prediction is for a sharp fall in November by -1.4%. Later in the day as the New York session readies to open, US inflation figures get published. The expectation is inflation will be unchanged at 1.2%. The value of yen could come under scrutiny in the Asian session, as Japan publishes its latest machinery orders data. Forecast to fall to 4.2% for November some analysts predict a negative number for this leading Japanese metric.
On Thursday a raft of Chinese export and import data is revealed. The expectation is for healthy growth, year on year and month on month, which gets reflected in the balance of trade figures. The customary weekly job claims data gets published in the US, the first week when most seasonal layoffs get counted, which could cause a spike. Export and import prices get announced for the US, indicating where inflation heads over the short term.
Friday sees the publication of the latest UK GDP figure. The forecast is 1.5% growth for the three months up to November. However, analysts expect the final Q of 2020 and Q1 2021 to be negative due to lockdowns. The UK balance of trade figures should also deteriorate. The GDP figure could impact the value of sterling depending on whether the forecasts miss or beat the estimates. There is a raft of medium to high impact data published in the US during the afternoon sessions. Retail sales, the New York Empire index, industrial production figures, business inventories, and the Michigan sentiment readings all get published during a busy session. Such a slew of data could impact US equity indices and USD’s value versus its main peers.
