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Last week saw a decent boost in risk sentiment on vaccine optimism, with stocks posting gains and JPY and CHF underperforming in FX markets. However, short-term issues still remain as we do not know how long it will be before the vaccine will become available to the common Joe, and Covid-19 cases continue to rise.
At the same time, lockdowns remain in the UK, the EU and now it seems that President Elect Biden is talking about lockdowns in the US as well. It would seem that a broad risk-on move may still face challenges, also because markets will need to wait until January to know the definitive structure of the US Congress.
With this political uncertainty, any further fiscal stimulus will be delayed. As such, some analysts have started to price in more easing from the FED, which may cap US yields and pressure the USD.
As such, the markets will likely privilege short-term strategies as there is a higher probability of rangebound trade, and a lack of trendiness.
Themes for the Week
- Covid-19: case counts are rising still and lockdowns are extended. Risk sentiment may be curtailed in the absence of any positive developments on the vaccine front.
- Stimulus: central banks will likely need to do the heavy lifting again, until January at least. Traders may pay more attention to central bank talk in this context.
- Brexit: the clock is ticking and markets continue to price in a last-minute deal, especially with Brexit hard-liner Cummings stepping down.
Data in the Week Ahead:
- RBA’s Lowe speech (Mon)
- ECB FSR (Mon)
- ECB’s Lagarde Speech
- RBA Minutes (Tue)
- OPEC-JMMC Meeting (Tue)
- US Retail Sales (Tue)
- BOE’s Bailey Speech (Tue)
- RBA’s Lowe Speech (Tue)
- UK CPI (Wed) à Might be stronger than expected as BRC shop prices rose recently.
- CAD CPI (Wed) à Possibly stronger as IVEY PMI prices component ticked up recently.
- AU Employment Change (Thur) à Possibly stronger as PMI employment components rose recently.
- ECB’s Lagarde speech (Thur)
- UK Retail Sales (Fri) à BRC reported weaker sales recently.
- ECB’s Lagarde Speech (Fri)
- Cad Retail Sales (Fri)
Correlation Report:
Comment: Moves in equities remain highly correlated but bonds have recently started moving, as moves in yields start to track the moves in stocks.
On the Radar:
As of Friday’s close, there is very little trendiness in FX markets with the exception of Kiwi. Equities reached all-time highs and remain poised for further gains, technically speaking.