After what feels like the longest presidential term in history finally Donald Trump was replaced by incoming President Joe Biden this week. Thankfully, the occasion passed without serious public incident with the US National Guard deployed across the city as Joe Biden was sworn in, in what appeared a compassionate and sincere ceremony and speech from the now US President and Vice President Kamala Harris. Taking the decision not to attend the ceremony and welcome the Biden family to the Whitehouse, Trump showed a characteristic lack of class to the end. For the outgoing President he now awaits the senate vote on his second impeachment, there were thoughts he may choose to pardon himself and Rudi Gulliani in his Presidential pardons, perhaps feeling that would be like an admission of guilt, but for now the financial markets breathe a sigh of relief with the balance of power sitting in more trusted and conservative hands and the ultimate eventuality of Trump from here on in sitting out with the realms of the market impact.
President Joe Biden wasted no time in immediately getting to work unwinding the executive orders actioned by the departing Trump. Buoyed with the ultra-loose monetary policy indicated by the Federal Reserve team last week and with Biden proposing to bring $1.9 trillion of pandemic stimulus to the US economy stocks continue to grind higher with the Nasdaq making a new high above 13,300 and S&P and Dow Jones topping at 3,869 and 31,300, respectively. With earning season delivering well and a sea of green on numbers from the US companies in particular Banking, with those who missed targets only doing so by slender margins, the trajectory of stocks for the large part of the week was to the upside with the dollar weaker on the ‘risk’ safe haven play and the outlook heavily indicating a continuation of this pattern.
Towards the end of the week however, concerns continue to grow around the growth of the second wave of the pandemic with Biden himself indicating that we could see another 100,000 deaths Stateside in a month pushing the total deaths to 500,000. Whilst he is fresh to the role and keen to try and win over staunch Republicans, he seems to have held back slightly on the forceful implementation of mask wearing opting for just regulation on wearing them on Federal property. The existing and projected Covid infection numbers are truly shocking and raised concerns that had the market more stalling than falling.
The situation appears no better in the Eurozone where Germany, Holland and France have been forced to extend lockdown and curfews towards Easter. In the UK Boris Johnson firmly alluded to the fact that the February 15th lockdown review date will likely result in further extension of lockdowns to some degree out to spring and potentially summer. The Pound looked to be soaring this week with infection numbers plateauing and falling subtly, however with the lag between infection and recovery or not, the death numbers peaked making new highs with the current trajectory meaning the UK will likely hit 100,000 COVID-19 related deaths early next week, making it the worst affected country globally per capita. As previously stated, the UK is ahead of the curve on vaccinations, but the government still can’t hit the 500,000 daily injections targeted with just 7.5% of the population currently vaccinated. The Pond strength earlier in the week was brought by the deceleration of the infection curve but the PM and Home Secretary’s warnings over tightening lockdown restrictions by rule of law and the fear the economic paralysis of a large faction of the economy could be felt into the summer brought the pound back from the 1.37509 highs by a cent to 1.3650 against the US Dollar.
The Eurozone remains under heavy pandemic induced pressures as we start the new year with the vaccination process of the larger bloc proving slower whilst infection levels continue to grow. The political disharmony in Italy and Holland remains a concern also. This week brought the ECB’s latest rate setting meeting whereas expected the Christine Lagarde and team left rates unchanged, opting to state the ECB are not tied to any yield with key rates projected to stay at current or lower levels until inflation improves. The two main points raised were around the PEPP where she stated it may not be used in full but could also be recalibrated moving forward. In the press conference as she was pushed on the committees thoughts around the damaging economic implications of an accelerating Euro she signaled the ECB were keeping a close eye on FX appreciation.
In the week ahead keep an eye on case numbers globally and any republican resistance to Biden’s plans for the US as he moves to tackle the bigger issues after the easy wins seen this week.
The Week Ahead:
Monday - A quiet day with most data centered around the Eurozone. ECB Head Lagarde speaks early in the session before German IFO Business Climate data. We hear from the ECB Head again at 4.15pm. On the turn of the day we get Japan’s Monetary Policy Meetings minutes.
Tuesday - UK data comes first for the day with Average earnings, Claimant Count and Unemployment numbers. Later in the morning and also from the UK we get CBI data. In the US session its HPI and Consumer Confidence data and the Richmond Manufacturing Index.
Wednesday - Starts with UK BRC Shop Price Index before CPI data from Australia and NAB Consumer Confidence. In the European session we get Gfk data from Germany and the UK Nationwide House Price Index. Durable Goods from the US is the main data from the US before the Federal Reserve FOMC rate decision, Statement and Press Conference. Later on we get Trade Balance from New Zealand and Retail Sales from Japan.
Thursday - Swiss Trade Balance, German Prelim CPI and Spanish Unemployment start the day. In the afternoon we get US Advance GDP, Trade Balance, Wholesale Inventories and Weekly Jobless, with CB Leading Index and New Home Sales just after. In the evening Japan’s CPI, Unemployment Rate and Industrial Production is released.
Friday - Starts with Australian PPI and Private Sector Credit, before Consumer Confidence and Housing Starts from Japan. In the European session we get French and Spanish GDP, Consumer Spending from France, German Import Prices, Swiss KOF, Spanish CPI, German Unemployment data and Eurozone Money Supply and Private Loan numbers. IN the US session first up is Canadian GDP, IPPI and RMPI. From the US we get PCE Price Index, Employment Cost Index, Personal Income & Spending as well as Chicago PMI, Pending Home Sales and University of Michigan Consumer Sentiment and Inflation Expectations.
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