Stimulus hopes and financial releases to set the tone

In the past week a number of fundamental issues came to light defining the market sentiment also enhanced by the lack of a high number of financial releases. Issues such as the US-Sino relationships, the hopes for a fiscal stimulus for the US economy and the vaccination process in various countries tended to direct the market mood. It’s characteristic how comments made by OPEC and EIA caused doubts for a quick return of oil demand, weakening its prices. US stockmarkets though tended to maintain an upward motion, reaching new record highs, and driven by optimism yet levelled off since Thursday. In the FX market the main characteristic may have been the weakening of the USD and its subsequent stabilisation also on Thursday. In the coming week we expect fundamentals to keep playing a role in the markets direction, yet the high number of financial releases scheduled could also affect the markets and clear up the fog over the rebound of the economies.

USD – Stimulus package still in focus

Fundamentally for the USD the main issue seems to be the possibility of a fiscal stimulus package being delivered. Any headlines showing that τηε package is to near the $1.9 trillion pledged by President Biden as well as any signs that the President is willing to go ahead without bipartisan support, expediting it, could enhance market optimism. Regarding the pandemic, the vaccination program seems to be intense and ongoing, providing some hopes for a quicker return to normality. Also it should be noted that the trial for the second impeachment of President Trump has started and albeit being an interesting event, as mentioned in last week’s report it failed to move the markets, at least until now. On the monetary front, Powell’s speech on Wednesday reaffirmed the Fed’s dovish stance and that its focus remains on the US employment market, rather than inflation. We expect that the main event stemming from the US next week, could be the release of the Fed’s minutes for its last meeting, which could shed more light as for the Fed’s intentions. As for financial releases, we highlight the release of the US retail sales for January on Wednesday as well as the industrial production growth rate for January the same day. On Thursday we get January’s building data, the weekly initial jobless claims figure and Philly Fed business index while on Friday we get the preliminary Markit PMIs for February.

GBP – Pound’s strengthening to continue?

The pound seems to be losing some steam on its ascent against the USD, yet the bullish outlook seems to remain for the time being. It should be noted that UK’s vaccination program is ongoing and intense and tends to create substantial hopes for a quicker economic recovery. Also, BoE’s persistence on keeping rates above zero tends to create some support for the pound as it could be regarded as a floor for the bank’s monetary policy for the time being. On the other hand though, statements by EU officials and especially Michel Barnier’s comments on Thursday, that the EU is in no hurry to grant UK bank’s access to the European markets could be weighing on the pound. It’s characteristic that London’s shine as a financial hub seems to be threatened by other cities such as Amsterdam. The importance of the issue was highlighted as BoE Governor Bailey warned the EU not to pick a fight on the financial sector. As for financial releases, we note on Wednesday UK’s CPI and PPI rates for January and on Friday the retail sales for January and preliminary PMI readings for February, with special weight being placed on the Services sector. Also on Friday, February’s CBI trends for orders could generate some interest for GBP traders.

EUR – Fiscal stimulus coming?

EUR’s strengtheing against the USD seems to have come to a halt, currently. It should be noted that the blunder regarding the vaccination programm in Europe seems to be among the negatives fundamentally for the EUR as it may slow down the economic recovery of the Eurozone. It was characteristic that EU Commission President Von der Leyen admitted that errors had been made in the process, highlighting the slow approval of vaccines. In our view, the possibility of employing the russian vaccine Sputnik on the other hand, may present an alternative solution, somehting that notably the Hungarians have allready accepted. Also Von der Leyen stated today that the recovery fund could start being distributed by mid year, which on the one hand, is a positive as it signalls that relief is coming, yet on the other the delay in the dispensing is troublesome. Also we would like to highlight the tensions in the Euro-Russian relationships. It’s characteristic that Russian foreign minister Lavrof has warned the EU not to go to far with sanctions or else Russia could cut ties with the EU. As for financial releases EUR traders are to have an early start this week, with the industrial production for December on Monday and on Tuesday Germany’s ZEW indicators for February and Eurozone’s 2nd estimate for Q4’s GDP. On Thursday we note the release of Eurozones’ preliminary consumer sentiment for February, while the highlight of financial releases are expected to be the preliminary PMIs of the area for February on Friday.

CAD – Weakening as oil prices dropped

The Canadian Dollar’s strengthening against the USD seems to have stopped after reaching an almost three weeks high while it may be no accident that WTI prices also edged lower at the same time. Statements made by OPEC and the EIA about lockdowns and new variations of Covid 19 tended to reduce the expectations of a quick recovery of oil demand. The drop of oil prices tended to also weigh on the Loonie which is closely related to oil as Canada is a major oil producing country. On the Covid front and comparative to its southern neighbor the Canadian economy maybe lagging a bit behind given that the US has a more intense vaccination program. Nevertheless and interestingly enough, afer the hit suffered by Canadian exporters of oil, as US President Biden cancelled the Keystone XL pipeline, Ottawa seems now to be aiming Biden’s clean energy intentions by offering hydroelectric power. As its well known Canada is one of the largest producers of hydropower. Overall we see the Loonie remaining sensitive to market sentiment and a cautious stance by the market in the coming week could weaken it and viceversa. Also CAD traders besides oil prices are also expected to keep a close eye for financial releases. We note on Tuesday the release of January’s number of house starts, on Wednesday Canada’s CPI rates for January and on Friday the retail sales growth rate for December.

AUD – US-Sino relationships and financial data eyed

The Aussie’s upward motion against the USD seems to have been reversed on Thursday and today, yet that could also be a sign of AUD weakness in addition to the USD strengthening. There may be some fundamental worries for the Australian dolar especially given the tensions on the US-Sino relationships, which we had highlighted in last week’s report. After Biden’s call with Chinese president Xi, worries tended to intensify. The phone call may have underscored the differences between the two nations rather than their common goals. Headlines and analysts tend to note that the US for the time being is going to continue to maintain its current trade policy towards China yet changes are to come. After the phone call Biden tweeted that he would be willing to work with China as long as it benefits the American people. It’s being reported that he also stated later on that the US must raise its game in the face of the challenge from China. On the other hand, Chinese President Xi warned that a confrontation between the two countries could be a disaster. Should the tensions between the US and China be on the rise again, we may see the commodity currency AUD, which relies on global trading conditions and China’s growth to be victimised. However its not all fundamentals for Aussie traders next week, also financial releases could capture their attention. On Wednesday, we note Australia’s employment data for January and on Friday the preliminary PMIs for Febraury as well as the preliminary retail sales growth rate for January.

General Comment

In the coming week we expect fundamentals overall to remain influential for the markets, yet as mentioned above financial releases could share traders attentions as there are numerous high impact releases scheduled. We expect the initiative to spread a bit more evenly and to be less skewed towards the USD, yet let’s not forget that the greenback is the world depository currency. Besides the FX market, gold could continue to maintain the adverse correlation with the USD, hence gold traders should keep in mind USD’s reactions as well before placing any orders. As for stockmarkets, albeit being overpriced according to some analysts, any further gains, hence new record highs, depend largely on how much the market will be able to maintain its optimism or not in our humble opinion. As for oil traders should the optimism for the recovery of global economic activity, hence greater demand for oil prices be renewed, we may see oil prices rising somewhat further, given that oil production cuts remain as a given. Having said that, we must note that oil prices have now recovered any lost ground and are now trading at pre-pandemic levels, which may harden any further advances.

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