During the trading week ending February 5 equity markets have been mostly bullish, the reasons for the renewed risk-on sentiment are various.
- – Vaccine rolls outs in the United States, the UK and parts of Europe are moving ahead as planned and, in some instances, ahead of target. Optimism is developing that the latest western hemisphere wave has peaked.
- – Due to a combination of immunisations and lockdown measures remaining in place, governments and health departments globally are cautiously looking towards springtime to target a sense of normality to return.
- – Joe Biden, Janet Yellen, and Jerome Powell should make an effective team. The calmness President Joe Biden has brought to the White House has boosted investor sentiment. His dovish, international, everyman tone has travelled well to all regions of the planet.
Combined with the latest stimulus getting prepared and the Federal Reserve’s chair Jerome Powell working well with Treasury Secretary Janet Yellen (who previously occupied the Fed’s chair), the future looks brighter for US citizens and their economy.
For three weeks in a row, the weekly jobless claims numbers have fallen, while the continuous claims are reducing in a proportionate amount. Investors will look towards the latest NFP numbers and the unemployment rate published on Friday 5 at 1:30 PM UK time for evidence that job losses have levelled off and employment is growing.
Those in power cannot underestimate the challenge the post-COVID-19 recovery represents
Governments, central banks, economists, and investors are not underestimating the effort required for the USA, UK, and EA to climb out of the COVID-19 economic hole when (if) the vaccines and lockdowns work, and we can move on. By some metrics, the recessions have been the deepest in hundreds of years.
The recent report from the Bank of England on Thursday illustrated the stark reality. The prediction is for Q4 2020 GDP to come in at -2.2% with GDP for the year at -8.6%. However, the BoE estimates the GDP figure for Q1 2021 to come in at -4% with Q3 identified as the quarter when growth will return.
USD continues its 2021 momentum
So far, during 2021, the US dollar has recorded substantial gains versus its peers. The dollar index DXY is up 1.59% year-to-date and 2.05% monthly. At 91.35 the dollar basket of currencies is still 10% down approximately versus its May 2020 level. However, the index has staged a moderate recovery versus its peers.
As an example of USD strength during 2021 so far, monthly EUR/USD is down -2.87%, AUD/USD is down -2.44%, USD/JPY is up 2.24%, USD/CHF is up 2.74%. GBP/USD is the exception of the major currency pairs; it is up 0.60% monthly.
The week ahead
According to Reuters, Germany’s industrial production should reveal a December -1.6% fall when the figure is published on Monday before the London opens. When combined with other German data missing targets recently, the metric could hit both the DAX and euro price.
Continuing the German data theme on Tuesday, the latest balance of trade figures gets published for the EA’s growth engine. The forecast is a 16.2B surplus in December for Germany, a fall from 17.2B euros in November.
The latest job openings (JOLTS) figure published in the New York session should support the theory that the US is making steady employment progress. The forecast is 6.25M openings, anything above 6 M is considered bullish.
The prediction is for oil reserves in the US to show a -4.26m barrels fall, impacting a barrel’s price.
Wednesday’s Tokyo session sees China’s latest CPI (inflation) data published. On a yearly and monthly basis, inflation should reveal a rise. Germany’s inflation figure should show an increase of 1% yearly. The inflation theme continues during Wednesday’s trading sessions with the latest US CPI data. A 0.2% rate for January, keeping the annual rate at 1.4% is the forecast.
During the New York session, the US budget plan and January’s monthly budget plan get published. According to analysts, the January spend should come in at -$147B.
The weekly focus on US initial jobless claims occurs on Thursday, and analysts expect to see jobless claims falling for the 4th week in series, down to 750K.
The forex trading world’s eyes will be fixed on the UK’s GDP figures when they are released at 7:00 AM UK time on Friday, before the London session opens.
Reuters predict -2% Q4 2020, with the final 2020 figure at -8%. The most significant quarter on quarter slump will come in construction down -8.6% and manufacturing down -7.2%.
The Bank of England is forecasting -4.0% for Q1 2021. If this prediction comes true, then by Q2 the UK will be back into official recession, determined as two successive quarters of contraction. The euro could come under pressure and increase speculation in the single bloc currency when the latest industrial production data gets published at 10:00 AM for the Euro Area. Year on year production should reveal a fall of -3.2% and -2.2% in December.
