Markets in Consolidation Mode

  • Worldwide coronavirus cases surpass 110.7 million with over 2,447,000 official deaths.

Markets are heading into the close of this week in consolidation mode with all eyes on longer-term interest rates. US 10 and 30yr yields lead the move higher this week breaking through significant levels and eventually trading to their highest levels in over 12 months. The rising bond yields eventually began to weigh on US stocks with indices trading to a two-week low overnight. Bond yields are rising as investors are upgrading their outlook for economic growth and inflation. Biden’s $1.9trn stimulus plan is helping to underwrite those expectations. Most economists and central banks believe any uptick in inflation will only be temporary, but with all the money creation that’s occurred in the world over the past year, it worth considering the risk that inflation may not be as transitory as the experts believe. 

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Positive risk sentiment drives markets

Worldwide coronavirus cases surpass 109.6 million with over 2,417,000 official deaths.

Generally positive risk sentiment over the past week has been evident in the markets as a reflation narrative gathers pace helped by the global vaccine rollout and expectations of US fiscal stimulus. Bond yields in Europe and the US have been moving higher, trading to levels not seen since September last year. US 10-year yields have moved above 1.20% while 30-year yields are now above 2.00%. Stock markets are also pushing higher along with energy markets.

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USD Continues to Feel Pressure

  • Worldwide coronavirus cases surpass 107.2 million with over 2,345,000 official deaths.
  • US Equity markets continued to register record levels over the past week.
  • While the market awaits the passage of the $1.9 Trillion US bailout bill, Treasury secretary Yellen says the US could hit full employment next year if the stimulus bill is passed, potentially suggesting interest rates could rise sooner than expected.
  • US Non-Farm Payrolls rose less than expected at +49k, but the unemployment rate fell to 6.3% from 6.7% on the back of a decline in the participation rate. 
  • New Zealand Q1 inflation expectations jumped to 1.89% from 1.59% prior. 
  • The Bank of England leaves interest rates unchanged at 0.10% and maintained its QE program at current levels.
  • UK like for like retail sales +7.1% y/y bs +4.8% prior.
  • Canadian employment change comes in much worse than expected at -212.8k, but much of the decline was as a result of Covid restrictions put in place late last year in Quebec and Ontario. 

NZ Jobs Data Rallies the Kiwi

Market Overview

  • Worldwide coronavirus cases surpass 104.3 million with over 2,261,000 official deaths.
  • US Equity markets continue to register record levels with the DOW and Nasdaq both up over 1.5% overnight.
  • The US Senate has voted in favour of moving ahead with his 1.9T coronavirus relief stimulus plan.
  • The RBNZ are no longer interested in cutting rates this year after a bumper unemployment read of 4.9% unemployment earlier today.
  • The Reserve Bank of Australia have raised their bond buying program by 100B but made comment the Australian economy is well underway to recovering earlier than predicted.
  • AstraZeneca vaccines are showing an 82.4% efficacy rate after a 3 month gap between jabs.
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Howard Wilcox

Choppy Markets This Week: 2021-01-28

Markets have been choppy this week buffeted by the ongoing Covid pandemic and slow vaccination rates in Europe with the realisation that a return to “normal” is further off than first anticipated. The new Biden administration continues to settle in with little sign of any bipartisan Democratic/Republican cooperation apparent- looks like “normal” transmission has resumed!

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NZD Holds Recent Gains

Market Overview

Key Points:

• Worldwide coronavirus cases surpass 100.2 million with over 2,147,000 official deaths.
• The first NZ community spread coronavirus case in over 2 months has been picked up in a quarantine facility- the highly infectious South African strain, the women twice had negative results before being released from quarantine on the 13th January.
• US Equity markets continue to register record levels.
• US Senate formally voted in the ne US Treasury Secretary Janet Yellen- the first woman to ever hold the job.
• Moderna says expect the first series of vaccines to last around a year before a 3rd booster shot is required.
• Biden says he will use US taxpayers’ funds to rebuild America
• Ex-president Trump’s impeachment trial will begin on the 8th February.
• The AstraZeneca rollout of the coronavirus vaccine in Europe has been a disaster according to analysts as they won’t be able to provide the number of doses originally expected with a drop of around 60% over the first 3 months of 2021 stemming from production issues.

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Economic Releases: 2021-01-24

Monday 25/01
9.45pm, EUR, ECB President Lagarde Speaks

Tuesday 26/01
5.15am, EUR, ECB President Lagarde Speaks

Wednesday 27/01
4am, USD, CB Consumer Confidence
Forecast 88.9
Previous 88.6
1.30pm, AUD, CPI q/q
Forecast 0.7%
Previous 1.6%
1.30pm, AUD, Trimmed Mean CPI q/q
Forecast 0.4%
Previous 0.4%

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Direct FX

USD Weakness

Worldwide coronavirus cases surpass 97.4 million with over 2,087,000 official deaths.

Currency markets have been relatively subdued over the past week with the broad theme of USD weakness still very much in play. US equity markets remain well supported with the S&P 500 trading to an all-time high in recent days. Markets are keen to see details about Biden’s fiscal spending package, but it’s fair to say most expect it to undermine the USD further over the coming months. Biden’s advisers have also been signalling to Wall Street donors that tax increases will likely come later in the year, but these may depend on the economic recovery and Covid’s impact on the economy. To that end we saw some mixed data from the US overnight. On the positive side the Philly Fed Manufacturing index showed solid gains jumping to 26.5 from 11.1 prior. But countering this was the harsh reality of the employment situation with weekly unemployment claims remaining above 900k. 

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