US Strengthens Amidst US Yields Rise

Markets are opening with a small wobble on the risk axis this morning as perhaps investors reaching a near term inflexion point. However, it’s too early to say as investors have their feet firmly planted and continue to roar like lions supported by a lengthy vaccine runway paved with US stimulus.

Dramatic moves over the past days following the Georgia elections have been triggered by a larger fiscal stimulus and a stable monetary policy. But the word “taper” has increasingly featured in Fed rhetoric, so the street is already keeping and an eye on the Fed as they start to shift on this front.

The dollar surged and Bitcoin plunged on Monday as US futures contracts, including on the Dow, S&P, NASDAQ and Russell 2000 slipped from records posted by underlying benchmarks, while European stocks retreated from 10-month highs.

Traders attribute the selloff to profit-taking amid spiking coronavirus cases in Europe, as well as China reporting its biggest daily increase in cases in five months, which hit energy and mining shares.

 Here are the key market moving factors for the week:

 The US

• America’s labor market shed 140,000 positions in December, worse than expected, yet it was partially offset by upward revisions and an increase in wages. The highlight of this week’s economic calendar is US Retail Sales.
• Richard Clarida, Vice-Chairman of the Federal Reserve, seemed reluctant to expand the bank’s bond-buying scheme. Fed officials seem to look through the current hardship and look toward the vaccine deployment and the recovery. His comments prompted further selling of bonds, boosting their yields and supporting the dollar. Fed Chair Jerome Powell is slated to speak on Thursday.

 EUROPE

• Eurozone investor confidence rose to a positive level in January for the first time since early 2020 as investors became more confident about vaccination strategy, ignoring the current lockdowns, survey data from Sentix showed on Monday.
• The investor sentiment index rose to 1.3 in January from -2.7 in December. This was the first positive score since February 2020 and was above economists’ forecast of 0.7.
• At -26.5, the current situation index advanced to an 11-month high from -30.3 logged in December.
• Similarly, the expectations index rose to a record high of 33.5 from 29.3 in the previous month.

The UK

• The UK is considering further restrictions as hospitals in London are under immense pressure.
• The British Pound may come under pressure in the near term as UK lawmakers consider tightening coronavirus restrictions further in response to a relentless surge in local infections.
• Despite Prime Minister Boris Johnson’s government imposing tier 4 restrictions on 80% of the population at the end of December, the 7-day moving average tracking infections has soared to just shy of 60,000.

JAPAN

• The Goldman Sachs analysts point out three key developments that occurred over the past week, which make them a bit less constructive on the Japanese yen in the near-term.
• “First and foremost, the US 10-year TIPS yield rose by over 10bp in the days following the Georgia Senate run-off elections. JPY tends to be the most vulnerable G10 currency to a back-up in long-end real rates, and we expect this theme to remain in focus for now.”
• “Second, senior Japan officials met last Thursday to emphasize authorities’ focus on maintaining “stability” in financial markets (according to Bloomberg), after USD/JPY hit its lowest intraday level last week since March and likely in the context of PM Suga’s reported directive in December to defend the 100 level (Nikkei).“
• “Third, Tokyo has now entered a renewed state of emergency, which our economists expect to limit Q1 sequential growth to just +0.2% QOQ SAAR – over 3pp lower than their prior forecast of +3.5%. All that said, we continue to see several reasons for JPY to grind down to 100 vs USD over the course of this year, despite our pro-cyclical cross-asset views. But for investors who want to add USD/JPY shorts to diversify a pro-risk portfolio, we think we may see better levels to do so within the coming weeks.”

AUSTRALIA

• Retail sales jumped (+7pc) to $31.65 billion in November
• The ASX 200 has risen 1.7pc since the new year began
• The Australian dollar hit 78.2 US cents last week, its highest value since April 2018
• Markets have largely put aside concerns about more contagious strains of COVID-19 and another attempt to impeach Donald Trump in the final days of his presidency.
• By 4:35pm AEDT, the Australian dollar was moderately weaker (-0.8pc) at 76.98 US cents due to a stronger US greenback.

CHINA

• The China stock market on Friday wrote a finish to the six-day winning streak in which it had gained more than 200 points or 3 percent.
• The Shanghai Composite Index now rests just above the 3,570-point plateau although it may rebound at the open on Monday.
• Google Announces Exit from China Market

Market Overview:

 Gold

• The rise in US yields pushed gold down through its 100-day moving average (DMA), at USD1895.00 an ounce. That sparked a disorderly rush for the exit doors by speculative longs that had been remorselessly squeezed since the rally of last Monday.
• Gold collapsed by 3.35% to USD1840.00 an ounce as the New York session finished.
• Gold is now flirting with its 200-DMA, today at USD1837.00 an ounce. A daily close below this is a signal that the downward correction will continue. Much will depend on US bond markets, which open later in London. If US yields continue moving higher, gold will face more selling pressure into a market that looks like it is still speculatively long.

 Oil

• Oil had a positive session on Friday, both Brent and WTI recording over 3.0% gains boosted by Biden stimulus hopes.
• Risk aversion seen in other asset classes has set in on energy markets today in Asia though.
• Brent crude has fallen 1.70% to USD55.30 a barrel, and WTI has declined 1.55% to USD51.80 a barrel.

Below are the major market moving events for the week:

 All times listed are EST

Monday

18:50: Japan – Current Account: anticipated to slip to 1.551T.

Tuesday

10:00: US – JOLTs Job Openings: previously printed at 6.652M.

Wednesday

8:30: US – Core CPI: likely declined to 0.1% from 0.2%.

10:30: US – Crude Oil Inventories: seen to surge to -2.133M from -8.010M.

Thursday

2:00: Germany – GDP: previous release showed quarterly growth of 8.5%.

7:30: Eurozone – ECB Monetary Policy Statement

8:30: US – Initial Jobless Claims: seen to dip to 780K from 787K.

Friday

2:00: UK – Manufacturing Production: predicted to drop to 1.0% MoM from 1.7%.

8:30: US – Core Retail Sales: to advance to -0.1% from -0.9%.

8:30: US – Retail Sales: will probably climb to -0.2% from -1.1%.

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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