It was quiet in the markets yesterday as the overall outlook didn’t change.
The same stories were circulating, the vaccine roll-outs and the prospect of additional stimulus from the US. Late last week, it was revealed the Democrats decided to try and implement the proposed $1.9 trillion spending package without receiving approval from the Republicans and that has been the overarching theme of the past few sessions. Volatility was low in equities on both sides of the Atlantic yesterday.
The US dollar fell again as it has been moving lower from the peak that was set last Thursday – which was its highest level since early December. It is not exactly a surprise the dollar retreated from its recent high, but whether the move lower will continue remains to be seen. The rebound in the US economy has its patches of weakness but it is still ahead of the UK and the eurozone, which has been a factor in the dollar’s strength recently. There has been a slight recovery in the CMC EUR Index lately. It was announced the EU have reached a deal with Pfizer-BioNtech, the trading bloc ordered 300 million vaccines, so that should help the region with its underperforming vaccination process.
Weakness in the US dollar gave assistance to gold and silver. Both metals have been moving higher since Friday. Silver’s volatility from the #silversqueeze saga early last week has fallen considerably.
Bitcoin has pulled back a little from the new all-time high that was set yesterday where it traded above $48,000.
Overnight, China’s CPI reading for January was -0.3%, while economists were expecting 0.0%, it was a sharp swing from the December reading of 0.2%. It suggests that internal demand is weak. Meanwhile, the PPI reading was 0.3%. Keep in mind the previous update was -0.4%. Factory prices turned positive for the first time in one year and that suggests industrial demand is rising, which might point to higher inflation in the months ahead.
In mainland China, the CSI 300, hit its highest level in 13 years as traders bought into stocks on the last trading day before the week long holiday for the Lunar New Year. European equity markets are tipped to open higher.
Andrew Bailey’s speech from the Mansion House dinner will be released at 5pm (UK time). The update is unlikely to deviate from last week’s Bank of England meeting whereby Mr Bailey cautioned that GDP in the final quarter of 2020 and the first quarter of this year will be impacted by the harsh restrictions that were imposed from November onwards. It wasn’t all bad news from the central banker, as he predicts there will be a rapid economic recovery as restrictions should be lifted as the vaccination scheme presses ahead. Even though the BoE boss said that banks should make preparations for the introduction of negatives rates, he also suggested that rates will not be cut below zero anytime soon, so some in the markets took that as a sign they will not be implemented at all.
We will also hear from the head of the Fed, Jerome Powell, at 7pm (UK time). Mr Powell recently expressed concern there were some pockets of weakness in the US’s economic rebound and that was before the last week’s not-so-hot US non-farm payrolls report was posted. The chatter about higher inflation being in the pipeline helped nudge up government bond yields so the central banker might have to manage expectations in that regard.
At 7am (UK time), the final reading of German CPI will be posted and the consensus estimate is 1.6%, which would be unchanged from the preliminary reading. The November level was -0.7%, but a VAT hike was behind the massive swing in inflation.
US CPI is anticipated to increase from 1.4% in December to 1.5% in January, while the core reading is predicted to dip from 1.6% to 1.5%. The core report strips out volatile components like commodity prices so it is considered to be a better reflection of underlying demand. The prices paid metric in the latest ISM manufacturing report jumped from 77.6 to 82.1, while the prices paid segment of the ISM non-manufacturing update dipped fractionally to 64.2. Services account for approximately 70% of the US’s economic output so that is likely to have a bigger impact on the CPI reading. It will be posted at 1.30pm (UK time).
The EIA report is predicted to show that US oil and gasoline inventories jumped by 1.2 million barrels and 1.5 million barrels respectively, details will be posted at 3.30pm (UK time). Oil hit a 13 month high yesterday but the positive move didn’t last and it ended up finishing in the red. Last week, OPEC+ announced they would maintain their current output level, also, US oil inventories dropped to an 11 month low, according to the EIA – these stories supported the oil market. Also playing into the mix has been the overall optimism surrounding the distribution of vaccines, plus the chatter the Biden-led government will sign off on the proposed stimulus scheme in the next few weeks.
EUR/USD – Friday’s candle has the potential to be a bullish engulfing and if it moves higher from here, it could target the 50 day moving average at 1.2148. Beyond that, it could retest 1.2349. A move below 1.1952, might bring 1.1800 into play.
GBP/USD – since late September it has been in an uptrend, it hit a 33 month high yesterday. If the positive move continues, it could target 1 4000. A pullback might find support at 1.3558, the 50-day moving average.
EUR/GBP – has been in a downtrend since mid-December and further losses might target 0.8670. A rally from here could see it hit 0.8996, the 200-day moving average.
USD/JPY – Friday’s candle has the potential to be a shooting star, a move lower could see it hit 103.96, 50-day moving average. Should the wider uptrend continue, it might hit 106 or 107.