After tanking many equities at the end of last week, the new coronavirus variant out of South Africa will likely be of primary interest to investors leading to the end of 2021. Nonetheless, the show must go on, and several vital data reports from the world’s major players are released this week.
*Please note; The author is working from UTC +13 when determining the timeline of data releases.
Freshly re-elected Federal Reserve Chair Jerome Powell is scheduled to speak (pre-recorded) on Tuesday morning. However, Powell won’t touch on US inflation, interest rates, and bond-buying issues. Investors might glean more critical information from the speeches of Fed representatives Richard Clarida (Vice-Chair), John Williams, and Michelle Bowman, who all speak Tuesday morning.
The Europeans Union’s Inflation Rate YoY for November is released Tuesday night. A rise from 4.1% the previous month to 4.5% is expected. Even so, It would be a shock for the European Central Bank to pull away from its ultra-accommodative stance in reaction.
We are graced with another Fed Chair speech on Wednesday. This speech should be more closely watched than Tuesday’s.
Powell will testify before the US senate in a speech tilted Coronavirus and CARES Act. It will be interesting to see if Powell’s tone on the transitory nature of inflation has changed to match that of US Treasury Secretary Janet Yellen.
Closing the week will be employment data from the US. First up is the US ADP Employment Change for November. ADP employment is forecast to rise by more than 500K, marking a third straight month of such rises if actualised.
The November Unemployment Rate and Non-Farm Payroll (NFP) are released early Saturday morning. A value in the Mid-500K is expected for NFP, while Unemployment is expected to fall one percentage point to 4.5%.
With employment being a more significant factor for the Fed under Powell’s tenure than previous Chairs, a solid report should help strengthen investors current understanding of the Feds position and timeline on rate hikes and tapering.
The US Dollar index weakens for the 7th straight day as investors' appetite for risk increases. The AUD/USD has broken the 0.69 mark, with the USD weaker against its G10 currencies, with global indices rising on forward optimism on a quicker recovery from the effects of the Coronavirus. US Indices have seemed to quickly discount the effects of the protests as they continue for the 8th straight day.
It is interesting to note how strong expectations and consensus have been on the market. It seems to have some binary optimism-o-meter, where the market is like "okay if my optimism-o-meter is above 1, markets rise." Markets, in general, tend to be forward-thinking. However, as of late, future optimism has been trumping future imminent damage. It has taken much imminent danger to earnings to change the market consensus drastically but has only required a little to brighten up the markets' spirits. It kind of reminds me of this video – US Indices only plummeted when push finally came to shove, when the Coronavirus was on the mainland. But indices are up, on earnings expectations months, even years down the line.
Fortunately, fundamental signs are supporting the depreciation of the US Dollar. China's manufacturing sector has seen an increase in appetite for Iron from Australia, Oil breaching $40 showing demand picking up, and institutional and retail investors after being taught to buy the dip, have been buying the dip. However, as from my article yesterday, there has been this massive disconnect between Wall Street and main street. It almost seems like every time an event happens, which would typically fuel a risk-off rally, the market seems to reset their time horizon further. However, if we ignore the Coronavirus and protests, economic data is still abysmal.
Mark Mobius, co-founder at Mobius Capital partners, still expects a V-shape recovery, pointing to the market moves as an indicator to future gains. He is bullish on further employment recovery, predicting that the US Government will implement fiscal stimulus in the form of infrastructure spending in order to give many Americans work.
It would be wise to keep some dry powder for a potential second wave when keeping the US market in mind or investing in countries with a better Coronavirus outlook. Investor's temperament must stay in check while seeing markets slowly tick up – the possibility of a second wave was highly likely in the United States before the protests, now they might just be adding fuel to the fire. It may be tempting to buy companies at an all-time high. But before you press that buy button, remember this video and remind yourself how the markets have been in the past couple of months.
Anish Lal has a great video on the weakening of the US Dollar against the Euro. You can watch it here.
In the latest development regarding US stocks, the Dow Jones, S&P 500 and NASDAQ 100 have all rebounded after last week’s catastrophic crash. The Dow has recovered almost 50% of its losses, gaining over 800 points, a rise of 3.25% for the day. The S&P 500 and NASDAQ are following closely behind, up 2.85% and 2.78%, respectively.
It is unlikely that the emergency rate cut made by the US Federal Reserve yesterday was the cause of this surge. Instead, these gains were most likely affected by the results of the US Democratic Primary elections, which saw former Vice President Joe Biden win in 8 states, giving him a boost against Vermont Senator Bernie Sanders. Biden is seen as more business friendly in his policies than Sanders, who aims to increase tax on the wealthy, and has criticised large corporations for not paying taxes.
As well as this, following on from the Fed rate cuts, the Bank of Canada has followed suit and also cut their interest rate by 50 basis points, or 0.5%, down to 1.25% from 1.75%. This move practically mirrored that of the Fed’s rate cut, which was also 50 bps and aiming to take their rate to the 1.25% range.
But while this move had been expected by investors, given that the Bank had already expressed that they were ready to take measures to stimulate the economy, it was unclear just how much the rate would be cut by.
Citing the coronavirus as the reason why they were cutting rates, the Bank said in a statement that the coronavirus had caused the Canadian dollar to drop amidst global uncertainties and expected the virus to only spread further and cause more damage to the countries GDP.
Following this news the US Dollar enjoyed a healthy rise to the upside, jumping from $1.3331 to $1.3427 against the Canadian.
In other news, as the NFP (Non-farm payroll) rapidly approaches, the ADP data was released. Usually seen as a precursor to NFP, ADP is also a payroll, but one that only measures jobs in the private sector, unlike NFP which measures all jobs in the US excluding agricultural workers. Therefore, it is a less accurate indicator of the US economy, but still useful as it usually predicts how the NFP release will turn out.
For the month of February, the ADP release reported 183,000 new jobs in the private sector, exceeding expectations of 150,000, even though the coronavirus still runs rampant. Therefore, it is possible that we won’t get to see the negative impacts of the virus until next month’s release.
As we come to the end of the week and approach the biggest trading day of the month, aka the Non-farm payroll (NFP) release in less than 24 hours, investors seem to be pricing in a stronger US dollar ahead of strong expectations for the US economy. As a result, the Euro has fallen to its lowest since October 2019.
The EUR, which was trading steadily at the 1.10000 mark for the past two days, is now averaging 1.09775 after falling to a 4-month low of 1.09660, following the release of another US national employment report, the ADP.
ADP, which stands for Automatic Data Processing, is a research institute which releases a monthly data report showing the employment situation in the US for the previous month. Similar to the NFP, it also measures the number of jobs in the given month, but only for private sector jobs. While the NFP measures the total number of jobs, in both public and private sectors. Therefore, it is usually seen as a precursor for the NFP, and a good indicator of how the bigger report will turn out.
This month’s ADP report saw the total number of private sector jobs at 291,000 in January, a significant increase from the previous month of 199,000. This is the largest increase in 4 years, and was well above forecasts.
Today’s analysis on the Euro was done by Mr Anish Lal here at BlackBull Markets, who had this to say:
“The Euro continues to feel the pressure, trading near a 5-month low, as ominous domestic data carries the bears lower. Meanwhile, positive Jobs data from the Private sector has helped equities and the US dollar to remain bid, with a continuation of the trend putting prices sub 1.0950 in play on the Euro vs US dollar.”