The week before Xmas is traditionally a quiet time for trading in the equity, FX, and commodity markets. However, this has not been an ordinary year. 2020 has been the definition of a genuinely extraordinary year.
The tragedy of the Coronavirus has dominated our trading world since March, and nobody could have predicted how the Black Swan would arrive, collapse market confidence across a broad range of securities resulting in zero-hedge.
But support came quickly in the form of massive stimulus from western governments and central banks, propelling equity markets to record highs. The SPX 500 is up 14.33% year-to-date and the NASDAQ 100 up a stunning and unprecedented 43.83%.
New year, and a less dramatic administration in the White House
During recent years many analysts have binned their economic calendar rule book and concentrated on issues such as macroeconomic events and Trump’s tweets. For a time during his presidency, his tweets and trolling on social media controlled market moves.
The unnecessary fight he picked with China caused equity markets to slump to bear market conditions in late 2018 early 2019 and the value of USD to slide. He accused China of currency manipulation and began to slap massive tariffs on Chinese imports into America. US equity markets whipsawed to his whims.
You’d have thought someone would have whispered in his ear “er, Mr President; we’re not sure this will work, we import most of our goods from China, they don’t buy much off us, except soya and animal agriculture. And if they stop buying you’ll upset the farmers you promised to protect in your 2016 election pledges”.
True to form, he’s ending his term bunkered down in the White House accusing the Swiss central bank of currency manipulation, because CHF has risen by 8.96% versus USD during 2020. However, a cursory look at the US dollar’s peers should reveal to Trump that the euro has gained nearly 10% versus the dollar, the Aussie is up 9%, the yen is up 5%, and the Dollar Index (DXY) is down -7%. Perhaps, in his mind, it’s all a conspiracy.
As analysts, we try to remain politically impartial; however, once Biden gets inaugurated in January 2021, we can all hopefully look forward to a period of stability and sanity in the USA. No more trade wars, a reach out to Iran, Venezuela and Europe, the restoration of global diplomacy, and engagement with the Paris climate change accord as a minimum.
Market wrap for this week
Apologies in advance for sounding like a broken record but we’re not alone in delivering repetitive market commentaries lately. Two main issues are dominating markets; the stimulus about to be sanctioned by the US Senate and Brexit.
The stimulus is close to an agreement, the granular detail centres on how much each US adult and child should get. Some Republican Senators think $600 per adult and $500 per child should be enough with eligibility limits. Other Senators are pressing for $1,200 per adult and $600 per child.
It’s fascinating to note that $2.4 trillion has already been approved by the USA govt in various forms. Estimates suggest that the combined stimulus through the Fed and Treasury (govt) could be as high as $6 trillion once 2020 ends, raising the overall US debt past 125% v GDP.
What is for sure, is that the stimulus payments will arrive too late to help many Americans enjoy a festive binge. Retail sales have fallen in the US, and many workers won’t be spending while thinking “it’s ok, I’ll just tighten my belt in January” because they have no idea if they’ll be in work in January.
Twenty-five million US adults are receiving a form of unemployment assistance, 60% of households have no practical savings, and on Thursday another 885K got added to the weekly unemployment claim register.
Brexit; will they won’t they agree on a deal over the weekend?
Last weekend was supposed to be the final episode of the “it’s my final offer, take it or leave it” Brexit saga. But the deadline slipped, as it did in October and November. The UK and EU have agreed to negotiate this weekend to try to find a solution.
We all know a face-saving fudge is coming, as the EU offers the UK a gracious exit, but the narrative created to fool the UK population is impossible to predict. The best guess is that a loose, non-binding agreement becomes published, but it gets held over to January for a vote in the EU council. What that does to the January 1 Brexit date is anyone’s guess.
It’s all about the optics with the UK government; they need their voters to see them as the winners. But UK citizens are losing the freedom of movement, freedom their ancestors fought to protect. This divorce should include a period of mourning in the UK; there’s nothing to celebrate.
Sterling has whipsawed in wide ranges over recent weeks as the negotiations have continued, and rumours of deals surfaced. On Friday, December 18, GBP/USD was trading down -0.58%, up 2.15% weekly due to optimism a breakthrough was imminent.
The currency pair breached the 50 DMA to the downside last week but has traded above the level since early November. Currently sited at 1.3200 this 50 DMA area and round number handle could become a target should the negotiations collapse without any form of agreement (however loose) in place.
A cursory look at EUR/GBP on a daily chart reveals just how vast the whipsawing range has been during December. At one stage this week the security slumped through the 100 DMA. The 50 DMA and the 100 DMA death-cross was close to forming during the week as the moving average gap narrowed. On Friday, December 18, EUR/GBP traded up 0.39% and up 6.72% YTD.
Precious metals; the safe-haven refuge throughout the year
If you’re a trader, it’s impossible not to regret the trades you didn’t take this year. Hey, if only we’d just gone all-in on Zoom and Tesla this year during the dip in March or bought the NASDAQ 100 as a safer bet.
Going long gold and silver would have been the haven hindsight bets during the tumultuous months we’ve experienced. As safe havens, both PMs have risen significantly. Gold is up 23% YTD and silver up 43%. A blend of both investments, either physical or through your broker, has proven to be an excellent hedge.
Silver has been in demand because an ounce is $26 and as low as $12 back in March. Acquiring $1,000 of the metal was an opportunity many Americans (who doubted the system) could take advantage of for such relatively small sums. Many alternative investors might have invested in Bitcoin during 2020, which has reached record highs over recent days, breaching the 23,000 level.
High impact events to look out for week commencing December 20
The run-up to Xmas is usually a quiet week for essential economic calendar news. On Tuesday the UK publishes the latest GDP figures, they’re forecast to come in unchanged from the previous quarter at 15.5% QoQ and -9.6% YoY.
The YoY reading would render the UK as the worse performing G7 economy during the pandemic despite the GBP trillions of support and 5.5 million workers still being paid while on extended furlough-leave.
In contrast, the prediction for the USA is a 33% QoQ GDP growth figure, although that’s arguably come at a hefty price; the Coronavirus is running amok, killing on average 3,000 people a day. Wednesday sees the publication of durable sales orders for the USA, personal spending, income and new home sales data, readings that will provide a snapshot of consumer confidence.
