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Last week ended on a profit taking note, with markets “selling the fact” after President-Elect Biden unveiled his stimulus plans. Covid-19 cases also dampened sentiment as the negative effects showed up in US Retail Sales.
The pullback in the “reflation trade” saw comm-dolls underperform alongside risk assets. The question now is whether the negative impact of lockdowns and Covid-19 cases will outweigh the (anticipated) positive effects of the vaccine rollout and fiscal spending.
Themes for the Week
- Biden’s inauguration: on Wednesday, Biden will become the 46th president of the USA. Historically the first 10 days of a new term were met with euphoria, so the markets will be expecting a boost.
- US Earnings: Forward guidance will inform momentum into 2021. Among the names will be Morgan Stanley, Goldman, BofA, State Street, Netflix, P&G, Kinder Morgan and Intel. Expectations are rather lofty.
- PMIs: traders will be watching the flash PMIs on Friday, which are a forward looking indicator, in order to assess how much (expected) damage Covid-19 and lockdowns will have on the economy.
- Central Banks: ECB and BOJ are not expected to implement any changes to current policies. The Bank of Canada will be more influential with decision, statement, MPR, press conference. Consensus is for an improvement of the outlook due to vaccines, Brexit deal, US Blue Wave
Data in the Week Ahead:
- BOE’s Bailey Speech (Mon)
- GER ZEW (Tue) à Expected to come in lower on lockdowns
- UK CPI (Wed) à price pressures have been higher recently
- Cad CPI (Wed) à IVEY PMI suggests higher prices
- BOC Decision (Wed)
- Biden Speech (Wed)
- AU Employment Change (Thur)
- BOJ Decision (Thur)
- ECB Decision (Thur)
- BOE’s Bailey Speech (Thur)
- NZ CPI (Thur) àPrice pressures rising as economy recoveres
- UK Retail Sales (Fri) à BRC Retail Sales suggests lower print
- EU Flash PMIs (Fri) à Lockdowns would suggest weaker sentiment
- CAD Retail Sales (Fri)
Correlation Report
Comment: Movements in the USD remain the key driver, with risk sentiment the runner-up.
On the Radar:
Based on last week’s close, the strongest signals going into this week are short EUR vs. USD, JPY, GBP, CAD; short Gold; short Dax.