For instant updates, follow FCI Markets on Twitter
With no market moving news over the weekend, we should start the week where we left off on Friday: NFP showed strong wage growth and lower unemployment rate, which played into the reflation scenario. Further positivity was offered by Fed’s Clarida and the “Blue Wave”, with markets now expecting a large fiscal package by President-elect Biden.
The key focus is now US 10YR yields, now at 1.12%, which is driving strength into the USD as well as holding up risk assets. But markets are now extremely sensitive to the size and scope of US fiscal stimulus.
The largest moves last week were in US 10 YR and Commodities (to the upside), with Silver, Gold, Jpy & Eur the laggards.
Themes for the Week
- Reflation: with confirmation of the “Blue Wave”, markets are discounting Biden’s fiscal boost which has pushed the US10Y above 1% and 10Y TIPS above 2%.
- US Developments: President-elect Biden will announce his stimulus plans on Thursday (consensus is for $2000 simulus cheques, generous unemployment assistance and enhances aid to city and state governments). President Trump risks impeachment. New Covid-19 restrictions may be around the corner.
- Earnings: on Friday, JPM, Citigroup and Wells Fargo will open US earnings season, posting Q4 results. Bank stocks are expected to show less weakness than the overall market in Q4.
- FOMC: Powell is likely to reinforce the upbeat take offered by Clarida last week, as fiscal stimulus is finally on it’s way.
Data in the Week Ahead:
- BOC Business Outlook Survey (Mon)
- ECB’s Lagarde Speech (Mon)
- BOE’s Broadbent Speech (Tue)
- ECB’s Lagarde Speech (Wed)
- US CPI (Wed) à With petrol prices increasing, this print could come in higher.
- ECB Minutes (Thur)
- FED’s Powell Speech (Thur)
- US Retail Sales (Fri) à No strong bias as wage growth was accompanied by job losses.
Correlation Report:
Comment: Correlation tables are highlighting stronger links between indices, as well as moves in the USD and US yields. From a sentiment perspective we’re seeing “risk on” and the return of “reflation”.
On the Radar:
Based on last week’s close, the strongest signals going into this week are: the long bias in Equities, Crude Oil, Aud, Cad, Nzd; the short bias in Gold, Jpy, Eur.