As we welcome in the Lunar New Year, it is with the hopes that this will be a better year. Yet despite the global impacts of the pandemic global stock continue to sustain the upward trajectory with the US markets leading the way.
The “vaccine trade” seemed to drift out of favour this week with the US Dollar slipping back against the Japanese Yen, British Pound and Euro. Whilst the western world still toils with vastly improving, but still alarming numbers of cases, meaning in the last 24 hours we have seen leaders in the UK and Germany hint that social distancing, lockdowns and border controls are to remain active certainly in the near term.
Central bankers from the UK and US have continued to reiterate the desire to hold firm on rates moving forward which coupled with fiscal stimulus, has given the Stock Markets a boost. Earnings season in the US continues to be supportive of the current trend.
In a week that was bereft of any significant economic data, Mario Draghi's path to leadership in Italy has brought much needed solace to the Euro at this early stage. But, we continue to favour downside Euro positions due to the speed of vaccinations in the Eurozone which is lagging far behind the UK and US, with not not dissimilar infection rates per capita.
We retain the view that the currency of choice to hold against the Euro is the UK’s Pound, which battered and bruised by the pandemic and Brexit remains heavily discounted and with a seemingly successful vaccination strategy. The GBP/USD rate hit 1.3860 this week showing considerable appreciation before consolidation below 1.3800 again.
Ongoing discussions between the UK and EU regarding trade through Northern Ireland remains a concern with common ground remaining hard to find in the aftermath of the Brexit divorce. There was comfort at the end of the week with the UK’s GDP numbers, whilst a contraction of nearly 10% is an obvious but not unexpected return, it was however slightly better than educated consensus and indicates that the UK could potentially avoid a double dip recession.
In the US as the Trump trial continues it looks unlikely that the Republicans will turn against the ex President and cast the required votes to impose a second impeachment barring him from running a future Presidential campaign, but this remains in the balance with it being likely we see a result next week.
This week saw President Joe Biden pass his stimulus plan of $1400 cheques through the House of Representatives but now has the tricker task of reaching a bipartisan agreement in the senate.
It was a strong week for Bitcoin following endorsements from big tech companies like Tesla, with the innovative car manufacturer endorsing usage and support of the digital asset as well as Wall Street starting to endorse usage and brokerage services for the product as Bank of New York Mellon announces they will facilitate its trading within their Treasury departments taking Bitcoin up towards the $50,000 level.
Happy Lunar New Year!
The Week Ahead:
Monday - National Holiday in China runs through till Wednesday with the US also off today. The first data of the day comes for the UK with the Rightmove House Price Index. Next up is Japan’s Revised Industrial Production before Eurozone Industrial Production and Trade Balance, with Eurogroup Meetings running throughout the day. We also get the German Bundesbank Monthly Report.
Tuesday - We start with the Minutes of the Australian MPC meeting before Italy’s Trade Balance, Eurozone Employment Change and ZEW Economic Sentiment from the Eurozone and Germany. In the US session we get US Empire State Manufacturing data and the Fed’s Daily speaks. At the end of the session we get Trade Balance data from Japan.
Wednesday - Early on we hear from the RBA’s Kent before UK CPI, RPI and PPI inflation data. In the US session its Canada’s CPI numbers and from the US, Retail Sales and Core and Non-Core PPI before the FOMC Meeting Minutes later in the session.
Thursday - Australian Employment and Unemployment Data starts the day before the UK’s MPC member Saunders speaks. At midday we get the ECB Monetary Policy Meeting Accounts. In the US Fed member Brainard speaks and the data comes with Philly Fed, Weekly Unemployment, Building Permits, Housing Starts and Import price numbers. Following this, its Eurozone Consumer Confidence and late in the session we get NZ Input and Output PPI and Australian Flash PMI.
Friday - We get UK GFK Consumer Confidence first up before Australian Retail Sales and Manufacturing PMI from Japan. In the European session we get UK Retail Sales and Public Sector Net Borrowing, German, UK French and Eurozone Services and Manufacturing PMI and Eurozone Current Account data. In the US Session we get Canadian Retail Sales and US Manufacturing and Services PMI and Existing Home Sales.