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Upbeat mood continues, US ADP jobs report in focus

Equity markets in Europe and the US posted solid gains yesterday as the proposed US stimulus package moved back into centre stage, meanwhile, the short squeeze stories have lost some of their influence over the markets. 

Silver boomed on Monday as it was the latest market to have been targeted by the pack of retail-investors with the view to ramping up the price. Yesterday, the metal suffered a sizeable loss, but it is still comfortably above the lows of last week.

Equity markets built on Monday’s gains as a $618 billion relief package for the US economy was on traders’ minds. A group of Republican senators is in favour of the programme. At the same time, Democrats are working on a $1.9 trillion proposal. The Democrats have an extremely slim majority in the Senate, when you factor in vice president Harris’s vote, so any fiscal hawks in the party could derail the proposal.

After the close in New York last night a couple of tech titans posted their latest numbers. Amazon’s fourth quarter revenue topped $100 billion for the first time, it was $125.56 billion, beating estimates. Jeff Bezos, the founder, will be taking a step back as he will become executive chairman later this year. Andy Jassy, the head of Amazon Web Services, will take over as CEO in the third quarter.  Google’s parent, Alphabet, revealed fourth quarter EPS and revenue that topped analysts’ forecasts. Advertising revenue rose by 22% annually. It continues to make a recovery from the slowdown it experienced in the second quarter.           

Metals tumbled yesterday as silver endured a sharp change in sentiment. Derivative exchanges, like COMEX, raised their margin requirement for silver futures, hence the aggressive move lower. Gold, copper, platinum and palladium lost ground too.

The US dollar pushed higher again and it hit a nine week high. In recent months, the dollar has attracted safe haven flows but that hasn’t been the case this week as risk-on attitudes have prevailed. The gap between the US’s economic recovery and that of the eurozone has become more apparent in light of the latest GDP readings. In the final quarter of 2020, the US economy grew by 4%, while the preliminary reading of the euro area’s growth was -0.7%. When you take into consideration the slow rate the EU is rolling out the vaccine, it does not inspire confidence for a speedy economic recovery. The dollar’s upward move could be a reflection that traders are banking on relatively robust growth in the months ahead.            

Sticking with the commodity theme, oil was in a league of its own as it rallied to its highest mark in almost one year. It was reported that OPEC lowered its 2021 oil demand forecast to 5.6 million barrels per day (BPD) from 5.9 BDP, at the same time, the body predicted that stockpiles will fall below their five year average in June. Even though it was a mixed update from the group of oil producers, dealers latched onto the inventory forecast.                 

Overnight the Caixin survey of Chinese services was posted. The January reading was 52, the slowest rate of expansion in nine months. It missed the 55.5 consensus estimate. Stock markets in the Far East are mixed, equities in mainland China are holding up well considering the services report. European stocks are on track for a higher start.

Between 8.15am (UK time) and 9.30am (UK time) the largest economies of Europe will release their latest services data. The Spanish, Italian, French, German and the UK readings are expected to be 45.3, 39.5, 46.5, 46.8, and 38.8 respectively.

The eurozone CPI level is expected to swing from -0.3% in December to 0.5% in January. The core CPI reading is considered to be a better measure of underlying demand as it strips out volatile components like commodities. It is tipped to jump from 0.2% in 0.9%. Should the core update undergo a big increase, it could suggest that actual demand is on the rise. The reports will be posted at 10am (UK time).

At 1.15pm (UK time), the US ADP private employment report will be posted and the consensus estimate is for 49,000 jobs to have been added in January. December’s reading was -123,000, the first negative report in seven months. On Monday, the employment component of the US ISM manufacturing update ticked up from 51.7 to 52.6 in January, even though the headline reading cooled to 58.7, from 60.5. It would suggest that manufacturing firms are feeling more confident in hiring, even if the overall mood has mellowed a little.

The US services PMI reading for last month is expected to be 57.4. It will be announced at 2.45pm (UK time). Shortly afterward, the US ISM non-manufacturing report will be revealed. Economists are expecting 56.8, which would be a dip from December’s 57.7. Services account for approximately 70% of US GDP so the updates will be closely watched. Earlier this week, the ISM manufacturing report revealed interesting goings-on within the sector. The prices paid metric rose but at the same time, the new orders level fell. It could be an early warning that demand is dipping but costs are rising – this would not be a good combination.  

The Energy Information Administration report is expected to show that US oil and gasoline inventories increased by 446,000 barrels and 1.13 million barrels respectively, details will be posted at 3.30pm (UK time).

OPEC+ is discussing future production plans and no adjustments are expected to be made.       

EUR/USD – while it holds below the 50 day moving average at 1.2135, the outlook should remain bearish. 1.2000 or 1.1923 could act as support. If the broader uptrend continues it could retest 1.2349

GBP/USD – since late September it has been in an uptrend, last week it hit a 33 month high. If the positive move continues, it could target 1.4000. A pullback might find support at 1.3521, the 50-day moving average.   

EUR/GBP – has been in a downtrend since mid-December and further losses might target 0.8800 or 0.8670. A rally from here could see it hit 0.8994, the 200-day moving average.   

USD/JPY – since early January it has been moving higher and yesterday it hit an 11 week high. While it holds above the 50-day moving average at 103.88, the bullish trend should continue and it might bring 106.00 into play. A move back through 103.88, could see it target 102.59.   

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