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Equity markets and USD appear primed to rise during the coming week

Jan 11 • Market Commentaries • 1163 Views • Comments Off on Equity markets and USD appear primed to rise during the coming week

COVID-19 will continue to dominate the headlines over the next few weeks. Several countries have reverted to versions of the strict lockdowns they first implemented in March and April 2020. However, the US, UK and European nations are pinning their hopes on the success of mass vaccination to eradicate the virus from global society.

The three primary vaccines available in the Western Hemisphere, made by Pfizer, Astra Zeneca, and Moderna, have received final approval from the various authorities in the previously mentioned global territories. The drawback to getting people vaccinated is twofold: vaccine hesitancy and distribution channels.

To date, the UK has only given 25,000 of its citizens the two shots required for maximum immunology, while the US has only vaccinated approximately 2.5 million people inside a month, versus the 20 million commitment made by the US government.

The logistics involved to get the jabs into arms are considerable, and reports are circulating that up to 60% of US medical staff are refusing the vaccine until its more proven. In comparison, in France, reports suggest approximately 55% of the public will refuse to be vaccinated. Perhaps governments should attempt to convince their citizens regarding the vaccines’ efficacy rather than demonise the reluctant with terms such as “anti-vaxxers”.

Negative economic news is positive for equity markets

The last week of December 2020 and the first week of January 2021 were the two most deadly weeks for the virus. Despite this fact, financial markets remain mostly unaffected by any negative news. Instead, opinions get immediately formed that negative data and information will equal more stimulus; therefore, equity markets will rise.

In the first trading week of January, US equity indices printed record highs. With Biden’s administration in place before the end of the month market participants and analysts remain convinced that more stimulus will be forthcoming; consequently, markets will continue to rise.

The result of the Senate run-offs in Georgia which has handed the Democrats a majority enables the party to execute its manifesto commitments. It also delivers the certainty that financial markets crave.

USD rises in the first week of 2021, will it set the trend?

The US dollar finally experienced its first weekly rise for many weeks during the first week of January 2021. The dollar index DXY is up 0.15% year-to-date, GBP/USD is down -0.87%, and EUR/USD is close to flat. USD closed the week down versus both antipodean commodity currencies NZD and AUD, and the US dollar fell against the safe-haven currencies of yen and the Swiss franc.

The euro has made substantial gains versus many of its peers over recent months, most notably versus USD and GBP. The US and UK’s central banks appear to be dovish, and meanwhile, the Brexit issues are about to hit the UK economy as lorries will attempt to cross the channel after a quiet first week of 2021. Sterling experienced falls versus many of its peers (other than USD) during 2020, that pattern may get repeated over the coming weeks if Brexit frictions occur.

Are commodity prices indicative of rising global economic optimism?

Precious metals, crude oil and copper have risen sharply from late 2020 to early 2021. Oil breached the critical psyche handle of $50 a barrel, and copper reached an eight-year high of $3.69 last visited in February 2013.

Oil, copper, silver and gold aren’t just speculative assets on futures markets; they have industrial uses and get classed as thermometers regarding the global economy’s overall health. Therefore, the overall risk-on mood becomes supported by the rise in demand and an associated increase in these consumables’ cost.

Economic calendar events to be aware of on Monday, January 11

Once London opens the latest Chinese inflation data published during the Sydney-Asian sessions, will be priced-into markets. AUD may have risen based on retail sales increasing by 7% in November, illustrating to other countries how a well-managed COVID-19 policy can help a country’s economy bounce back quickly.

During the New York trading session officials from the Bank of England, the European Central Bank and the Fed will deliver monetary policy speeches which could alter the trajectory of sterling, the euro, and the US dollar. During the evening’s Sydney session, the latest November current account figure for Japan will get published, Reuters forecast a deterioration from Y2144B to Y1610B. This result could impact on the price of yen versus its peers.

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