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Intermarket:
- SP Futures 3720 (+0.42%)
- EUSTXX 3504 (+0.75%)
- Crude Oil 52.40 (+0.38%)
- US 10YR 1.09 (-0.62%)
- EurUsd 1.2129 (-0.03%)
- UsdJpy 104.66 (-0.01%)
- DAX 13548 (+0.79%)
After the equity market frenzy over GameStop and AMC with recent brokerage restrictions adding to market volatility in the so-called “Reddit Rebellion”, the attention has now turned to Silver. After closing at 27.00 on Friday, it printed 29.00 in Asia trade.
In equity space, we saw a recovery during Asia trade but the bias remains negative still. On the bright side, President Biden will meet with Republicans today to discuss US fiscal stimulus plans this week. On a more negative note, the short squeezes inflicted by the Reddit Rebellion could cause more hedge funds to sell profitable assets to cover losses, hence adding downwards pressure to the markets.
The ongoing EU-AstraZeneca spat over COVID vaccine supplies is also likely to ignite concerns about vaccine nationalism after the EU’s messy announcement of potential export controls on vaccines produced within the bloc. Germany’s Die Zeit said the European commission had unwittingly provided “the best advertisement for Brexit: it is acting slowly, bureaucratically and in a protectionist manner. And if something goes wrong, it’s everyone else’s fault.”
Looking Ahead: today we get the US ISM manufacturing index for January. It has been on a rising path since April but is probably close to a peak as Chinese PMI’s point to a peak in the global manufacturing cycle. Later we hear from Fed’s Rosengren.
For a rundown of this week’s themes, check our weekly call.
Matters that Matter:
• Silver catches GameStop retail frenzy, prices soar past 29.00
• Republicans press Biden to scale back $1.9 trillion COVID-19 relief plan
• Goldman sees hedge fund exposures close to records, ongoing sell-off risk after GameStop swings
•China’s Jan factory activity expands at slowest pace in 7 mths; Caixin Mfg PMI, 51.5, 52.7 f’cast, 53.0 prev
• Australia home loans surge in Dec, prices hit record highs; Dec home loan approvals up 8.6% m/m
• ECB Lane says stocks, bank bonds not in toolbox – Sueddeutsche Zeitung
• UK regulator, eyeing wild stock market moves, says it is ready to act
Majors Weekly View:
USDJPY
- Prices posted gains of over 1 Big Fig last week, posting 9 week highs. As such, the outlook for this week is bullish.
- Short-covering the nature of Friday’s rally.
- Offers ahead of 105.00, stops above. Bids from 104.50.
EURUSD
• Prices posted an “inside week” into Friday’s close. As such, the sequence of lower weekly highs remains intact and we prefer to play a break of the 1.2200/1.2055 range.
• EUR quiet in Asia trade, “no rate cut” talk supportive
• Covid vaccine issues, Italy political drama, Eur weak economy to cap.
AUDUSD
• Prices declined only modestly last week, posting the 3rd lower weekly high in a row. As such, the call for this week is just cautiously bearish.
• Dovish tone expected from the RBA tomorrow.
• Break of .7565 may see further stop loss selling. While break of .7720 would attract more buyers.
GBPUSD
• Signals have been switching each day in the past week, with declining ranges and little directional momentum. As such, the call for this week is to remain neutral between 1.3760 and 1.3609.
• Pound remains resilient.
• Vaccine rollout proceeds at fast pace vs slow pace in EU.
Weekly FX Relative ATR Grid
Comment: Volatility has finally accelerated on risk-FX (Aud,Nzd, Jpy): this is where we could see some continuation. Instead, GBP remains dull and in a contraction, so we still expect a volatility expansion in the Pound.
Initial Indications for the Week
USD, EUR and CHF weakness are becoming evident as the week gets under way, vs. GBP and AUD strength.