This week ahead, we have a plethora of data coming out across the world dictating the strength of "main street" and its contribution to the Coronavirus Pandemic's global recovery.
With that said, the Coronavirus continues to present itself as a factor pulling back the global economy's growth. With financial markers such as Brent Crude and WTI prices returning to pre-pandemic levels, evidence of life post Coronavirus slowing down is coming into sight. However, as shown, even the countries who handled the Coronavirus well indicate that we still have to grapple with the strengthening strains.
Case in point – I am currently writing this at home, as New Zealand, renowned for their Coronavirus Response, has placed their largest city, Auckland, back into a level 3 lockdown following three community transmission cases from the stronger UK Strain.
However, as we all know, financial markets do not sleep. Here is your week ahead.
Japan has not had the best success regarding the fight against the Coronavirus. Initially praised for their no lockdown strategy, dependent on the mask-wearing, cleanliness culture Japanese citizens exhibit. Three waves of the Coronavirus later, each larger than the previous, and the Japanese Government depend on the vaccine to help save their citizens from further infections.
However, the Japanese economy is showing its strength, and analysts predict they may come out of the pandemic stronger than expected. Unemployment has stayed at a modest 2.9% due to Bank of Japan's corporate lending scheme, alongside bankruptcies falling by around 20% from a year earlier in recent months. Analysts predict GDP growth of 10.1% in the last quarter of 2020.
Last year today, the Coronavirus had started to hit the shores of many countries. A couple of months later, most of the Eurozone would have concluded that their lockdowns were adequate in eliminating most of the virus and that citizens may freely roam around Europe for the summer.
That decision would cost them many more lives and setback the road to recovery.
It is now 2021, and we're approaching the same period in which these decisions were made. However, now, Europe has been slowly rolling out the Coronavirus vaccine to citizens. However, the President of the European Commission, Ursula von der Leyen, has stated that the EU was late to rollout and authorize Coronavirus vaccines and are "still not where we want to be." However, a better than expected GDP print may mean stronger Euro, which may be detrimental to exports.
With the United Kingdom slowly getting a grasp on the Coronavirus with the help of a vaccine, the new strain provides new challenges as British scientists state the U.K Coronavirus strain is "likely" 30% to 70% deadlier than the original. With that said. Boris Johnson is Optimistic that the Coronavirus Lockdown can be eased soon – however, as history shows, lockdown is only effective if there has not been community transmission for weeks. Analysts predict CPI to drop slightly to 0.5% from 0.6% year over year.
Like the United Kingdom, the United States has been given a tailwind in the form of a vaccine. However, similar to the United Kingdom and Europe, the vaccine's distribution infrastructure has been criticized. With the U.S having many months to prepare for the eventuality of a vaccine. Cases are down from their all-time highs, although still above 100,000 for their daily average. Analysts predict U.S Retail Sales to rise to 0.7% this week ahead, up from -0.7% a month before.
Australia has recovered from a devastating 2nd wave by introducing a drastic lockdown near the middle of 2020. However, there have been many flare-ups around Australia, with one in Sydney and one currently in Melbourne, which has caused the local Government to implement a short lockdown. However, there has been evidence over the past couple of months of Australians using the money they have saved during the past lockdowns and spending it. With that said, analysts predict a slight fall in the unemployment rate to 6.5% from 6.6 in January, with retail sales expected to bounce to 2% from a negative 4.1%.
Busy week ahead. Trade safe, and stay safe.
The Pound against the U.S. Dollar broke 1.38, a critical psychological support/resistance level that gives bulls confidence to attack the 1.40 level.
The recent tailwind in the Pound has mainly come from the number of initial doses the U.K. has distributed amongst its citizens. More than 10 million people in the U.K. have received at least one dose of the Coronavirus vaccine, prioritizing the elderly and frontline workers.
However, initial optimism will not last long. Further pushes higher in the pair will long-lasting positive effects from the vaccinations and the lockdowns, with a Reuters poll finding that many analysts believe it'll take more than two years for Britain's economy to recover to its pre-Coronavirus levels.
James Smith at ING stated that "While we expect strict lockdowns to trigger a 3% fall in U.K. GDP in the first quarter, the more optimistic outlook for vaccinations means a sustained recovery could start in the spring". Furthermore, Mimi Rushton, co-head of global F.X. sales at Barclays, stated that "The reative outperformance of the U.K. in rolling out the vaccination program has definitely helped buoy expectations for an accelerated recovery."
Analysts will be looking at GDP figures coming out later this Friday, with analysts predicting a 0.5% in GDP Growth.
However, the strength of the pair also comes from the recent weakness of the U.S. Dollar. As risk-on takes over in many asset markets, the continuation of the Federal Reserves' $120 Billion scheme and inflation concerns continue, long term tailwinds continue to pressure the U.S. Dollar. However, many analysts are reconsidering their predictions of a weaker dollar on the possibility of a better than expected U.S. recovery and the Fed backpedaling on their extraordinary measures.
George Saravelos, head of currency research at Deutsche Bank in London, stated that "Having been vocal dollar bears last year we argue it is time for a consolidation in the dollar lower trend and would take profit on [negative dollar bets against the euro]."
1.45 is a very specific target for GBP/USD. However, it’s a significant target as that’s where the Pound was before the Brexit referendum. Now the Brexit deal is done, what will push it back to that level again?
It is clear that the damage that the Coronavirus has done continues to weigh on the pound. With lockdowns in the UK holding through Christmas and New Years, and continuing into the new year, optimism in the UK economy is at an all-time low.
However, with daily Coronavirus cases dropping 25% from the last week, there is some signs of the UK pulling out of their current situation. With that said, hospital beds are still near the brink of overcapacity, alongside deaths continuing to record over a thousand deaths a day.
Another factor weighing on the cable is the forward-looking guidance the Bank of England gives on interest rates. Specifically, whether they will bring the rate into negative territory.
However, after Governor Bailey’s speech earlier this week, the market has pushed back on hopes that the current interest rate of 0.1% going into negative territory. However, analysts predict a rate cut from 0.1% as soon as next month. Goldman Sachs strategists predict that there could be a rate move to 0% soon, placing those odds at 4 to 1.
Valentin Marinov, head of Group-of-10 FX research and strategy at Credit Agricole SA stated that “The pound is regaining ground as rates markets are pairing back rate cut bets ahead of the February policy meeting..”. However, he also added that “any rebounds in the GBP represent a selling opportunity at current levels.”
The catalyst for the Pound is relatively clear: A dire Coronavirus situation getting much, much better alongside interest rates holding steady.
What are your predictions for the pound?
As the news cycle slows, with the election in the past alongside initial vaccine hype fading away, it is essential to realize that not only is the Coronavirus continuing to ravage the economy, it continues to ravage the families and lives of many around the world.
Many have turned the Coronavirus into a statistical exercise, looking into the future when we eventually look past the Coronavirus. However, it is currently a present problem, with present consequences. Keep this in the back of your head when you trade and invest. Here is your week ahead.
Like many countries in Europe, Germany is experiencing a spike in cases larger than the first wave. They recently recorded 23,000 new cases yesterday. This has directly affected service sector activity, with HIS Markit's flash services PMI's fell to 46.2 from 49.5 in the previous month. Remember, a print below 50 entails a contraction in manufacturing. Analysts forecast Germany to post its deepest recession since World War Two.
In terms of the most frustrated, I am at a country in terms of their Coronavirus response; I am most frustrated in the UK. They had the resources to implement a robust early Coronavirus response. However, Bureaucracy and trying to balance economic damage and human life has placed the UK on its knees. At its peak, the UK recorded over 34,000 daily Coronavirus cases.
After placing a lockdown on citizens, Prime Minister Boris Johnson plans to end the lockdown on 2nd December. However, daily Coronavirus cases still rack up, around 20,000 per day. For reference, New Zealand and Australia lifted restrictions once there were consistently zero community Coronavirus cases. However, the second lockdown could not push the UK's PMI's further down, printing 45.8 with an analyst consensus for 42.5. However, a third wave will push this figure further down.
While the Coronavirus stops many businesses from operating, one sector that was affected less was freight. However, with Australia heightening tensions with China, their largest trading partner, their Trade Balance may see a drop in the next print. Canberra's Officials stated that reports on Chinese authorities telling Chinese buyers to stop purchases of Coal, copper, wine barley, sugar, lobster, and timber as "deeply troubling.
"On the other side of the bond, Beijing has accused Australia of "anti-China hysteria," about Australia prompting an investigation into the origins of the Coronavirus vaccine in China. The previous trade balance was 5.63 Billion.
Japan is one of the only countries that are experiencing the third wave. Each consecutive wave has been larger than the previous in Japan. The method they have adopted, called the "Japan Model," has effectively curbed the spread of the virus in the country.
However, as the third wave is currently in full swing, experts state that the strategy is approaching its limits. Kuroda predicts that "the economy is likely to hit bottom around April-June and is expected to continue improving as a trend" and that it "will help price growth turn positive and gradually accelerate toward [their] 2% inflation target." He further stated that if they hit their 2% target, an "exit from [their] massive stimulus program will come into sight." However, he believes it's currently premature to do so at this stage.
Having beaten the Coronavirus, New Zealand is well on its way to its recovery. With the RBNZ removing LVR's and lowering interest rates earlier this year to cushion the economic effects of the Coronavirus, they have placed it back, quoting "financial stability". Interest rates continue to be at record lows, allowing investors and first home buyers to attain record-low mortgage rates. This has pushed the average house price of over a million dollars in Auckland for the first time.
House prices have been a heated topic with politicians and citizens of New Zealand, with buyers struggling to get into the market and owners going all to increase their assets. However, the RBNZ refuses to implement policy to house prices, stating that "that is not their mandate", and that their mandate is employment and inflation. Orr's speech this week ahead may further see him cement RBNZ's stance on house prices.
The United States recorded 198,585 new cases of the Coronavirus on the 20th November, just shy of the somber record of 200,000. With the country recording an annualized rate of 33.1% during the third quarter showing the effects of government stimulus and quantitative easing by the Federal Reserve, many analysts predict a slowdown in the couple of quarters to come. Aneta Markowska, Chief Financial Economist at Jefferies, wrote in a report to clients on Thursday that "The outlook for Q4 is very shaky in our view" and that "The economy has already lost a lot of momentum over the summer."
Not as a busy week ahead compared to previous weeks. However, news on a Coronavirus vaccine should be watched out for, as it could trigger a risk-on / risk-off event in all assets across the markets. Stay safe, trade safe.
Trump skipped the G20's "Pandemic Prepardness" event to play Golf on that beautiful, cloudy day.
Two main fundamental factors depressed the GBPUSD for the past couple of years—Brexit, and now recently, the Coronavirus.
The trade is relatively simple – once there is a vaccine for the Coronavirus, alongside certainty on Brexit talks, a good case can be made for the pair to reach its Pre Brexit/Pre Coronavirus levels around 1.45
Let's go over the technical first. A Fibonacci drawn from 1.34 to 1.15, from the 2019 high to the 2020 low, can see the level of 1.45, hitting perfectly with the 161.8% retracement level, which was the level before the Brexit referendum results were announced in 2016. Alongside predicted further weakness in the US dollar, as vaccine hopes rise, the pound may rally on relatively less stimulus to its US counterpart.
We can also see some consolidation zones and congestion around 1.32 and 1.38, where bulls and bears fight it for a higher or lower move. However, movements to the upsides past these zones paired with positive fundamental news may see price levels freely hit strong Fib levels. A robust full recovery, with pre-Coronavirus level economic activity alongside a positive post Brexit environment, and we can see levels hit 1.50 – 1.55.
It has almost been five years since the Brexit referendum took place—a quick refresher on why Brexit occurred. There were talks amongst the public that they were getting the short end of the stick regarding the European Union and that the majority of the citizens in the UK wanted to leave. The Prime Minister at the time, David Cameron, disagreed with the notion that the UK public wanted to leave. Therefore, he initiated a referendum to show that the UK did not want to leave the European Union. It turns out he was wrong, and they did want to leave. David Cameron retired soon after.
Five years later, and we're edging closer to a deal. Brussels and the UK have started in-depth negotiations again after the Coronavirus ravaged the world. A "deadline" has been set for 31st December, where Britain will "leave" the EU regardless of whether a deal has been met. However, "deadline" is in quotations as both have agreed to extend deadlines that have passed many times before.
An EU official has stated that "its getting terribly late and may be too late already" and that "they [the EU and the UK] haven't quite reached where they had hoped to be." If a "no deal" Brexit occurs on 31st December, shock waves will be sent not only in the financial markets but also supply chains all across Europe and the UK. There is currently free trade and free transport out of the UK and into Europe and vice versa. However, a no-deal Brexit would mean that on the 31st December, the EU will treat the UK like any other country.
A no-deal Brexit should see the pound drop to a similar magnitude of that in 2016. However, if the optimistic scenario occurs and a vaccine comes alongside positive Brexit negotiations, we should see the pound rally against the US Dollar.
When all is well and good, Joe Biden is most likely to be the 46th President of the United States. We can finally put the election behind us and focus on the recovery of the economy stemming from the effects of the Coronavirus. Here is your week ahead.
The elections drew our attention in the past week. However, the Coronavirus continues to run rampant in many countries, including the United Kingdom. They recorded over 25,000 new cases on the 7t November, even after Boris Johnson implemented a 4-week lockdown. Bank of England Governor Andrew Bailey stated that the Central bank is considering other policy tools such as a path of policy and negative rates – however, it has no fixed order and time frame on when they will use them. He stated that “It will always be dependent upon the state of the world and the state of the economy.” Alongside Bailey’s speech, the UK is set to release its unemployment rate the day after, with analysts predicting an increase of the unemployment rate to 4.8%, up from 4.5% a quarter before. Furthermore, Brexit talks will continue this week, making the Cable an interesting pair to watch.
After beating the Coronavirus, China is well on its way to recovery. Economists polled by the WSJ protect the consumer price index will rise 0.75% from a year earlier, predicting a number that would be the weakest inflation reading in the past ten years. China has implemented strict Coronavirus rules in order to make sure the outbreak does not resurface. For example, schoolchildren in China must wear masks during the day, re-apply hand sanitizer, and have temperature checks three times a day. Ali Mokdad, a professor of Global Health at the University of Washington and a former official with the international health program at the Centers for Disease Control and Prevention, stated that china “have done an amazing job of controlling the virus.”
With Jacinda Ardern being elected Prime Minister, there is a general consensus that public debt will be set to increase as the government rampantly borrows in order to control the economic effects of the Coronavirus. New Zealand has generally been touted as one of the most successful countries in trying to eliminate the Coronavirus – however, it came at a great economic cost. The IMF forecasts that New Zealand’s economy is expected to fare much worse than most advanced economies, with GDP per capita is predicted to be lower in 2025 than in 2019. However, with most restrictions in New Zealand removed, many local businesses are back and operating. In October, a survey of 700 global business leaders by Bloomberg ranked New Zealand as the nation that has the best handled the pandemic and the market they would most confident investing in.
Many Central Bank leaders believe that negative interest rates are the most beneficial when the economy is recovering – and that’s what is currently happening in New Zealand. The average house price in Auckland sold for over $1 Million NZ, which means a surprise negative interest rate this week ahead; however, will most definitely send the NZ dollar downwards, which may boost economic activity.
With Joe Biden most likely taking the spot of the Presidency, markets can return back to a relative normal. It is a long recovery ahead for the United States, with Biden promising to prioritize eliminating the Coronavirus. Cases in the United States continue to run rampant, with cases reaching an all-time high at 126,000 on 7th November. It is to be seen whether Biden’s plans will materialize. With that said, the US CPI is stated to say the same at 1.7%.
The UK, Italy, France, and Germany are all experiencing second waves in their respective countries. This has forced many of them to enter a second lockdown, essentially locking in a “double-dip” recession, as CNN puts it. The European Unions GDP surged 12.1% between July and September, as restrictions eased all around the bloc. However, with restrictions coming back, these gains may be short-lived. Andrew Kenningham stated that “It is difficult to think of another occasion when such ‘good news’ will have so little to cheer” and that “the second wave of Coronavirus restrictions is about to push the single currency area into a double-dip recession”. With that said, analysts predict GDP figures to stay relatively equal at around 12.1%
Relatively quiet week ahead in comparison to previous weeks. Don’t forget to stay safe, and trade safe.
Congratulations, Joe Biden.
With over 93 Million US Citizens voting early, surpassing two-thirds of all 2016 and consisting of 43% of registered voters, the United States election is finally two days away this week ahead. Many regard this as one of the most important Presidential Elections in history, possibly changing society's fabric in the United States for the foreseeable future.
Although the Presidential Election will probably get most of the attention, this week continues to be eventful with a lot of data being released. Here is your week ahead.
Dates are in NZDT.
A key point in Trump's campaign in 2016 was his promise to bring jobs back to America. However, an amended NAFTA agreement, alongside many more amendments to foreign policy, has lost many manufacturing jobs. For example, over one in four Michigan manufacturing jobs have been lost since the NAFTA agreement amendment.
The Coronavirus has just brought more pain to the sector, with an estimated 381,000 manufacturing workers in Michigan, Ohio, Wisconsin and Pennsylvania were laid off or furloughed – with all, but one (Pennsylvania) states being in the midwestern part of the USA. These states were one of the key reasons why Donald Trump was elected in 2016.
As states slowly open up, the Coronavirus continues to run rampant, affecting workers employed in the manufacturing sector. Unlike the tech and finance sector, manufacturers can not work from home. With that said, the US's ISM is predicting to increase slightly from last month to 55.6 this week ahead, as suppose to 55.4 last month.
Australia reached a positive milestone yesterday – zero community transmission. The country has a long road to recovery ahead of them, and the Reserve Bank of Australia acknowledges that. With dovish tones in the previous RBA minutes, analysts predict a 150 point basis cut, from 0.25% to 0.1% tomorrow. However, Insight Manager at Finder, Graham Cooke believes that further cuts will not make dramatic changes to the finances of ordinary Australians, stating that "a further 10-15 point basis cut us unlikely to have much of an impact on the economy –however, our experts seem to think that the RBA is in "every little bit helps" mode."
Furthermore, Retail Sales will also be released a day after the decision. Analysts predict a further 1.5% decline in Retail Sales as the Coronavirus continues to take a longer-term toll on employment.
The event everyone and I mean everyone, including your mother, will be watching.
There is nothing much to say about this other than to buckle in. Many polls state that Biden is likely to win. FiveThirtyEight predicts that in 20 out of 22 scenarios, Biden is stated to win. Other polls from firms such as RealClearPolitics see Biden leading over 9%.
Judging by the polls, the only way Trump can win is if he wins all of the swing states. The popular vote in NYC and California have Biden to win anyways, which means the popular vote will be absorbed within the Electoral college (tl:dr, the RealClearPolitics poll may be closer than is stated).
However, the polls showed Hillary winning in 2016. And we all know what happened then.
The UK has finally imposed a stricter lockdown (however, not a full lockdown) on citizens for one month, with analysts predicting that the lockdown may be extended further to allow the UK to have their Christmas not under lockdown. The Bank of England is set to inject over 100 Million pounds buying back bonds to fight the second wave.
However, this may not be enough, with analysts at HSBC predicting that the BoE's bond-buying regimes are "running out of room," which may leave the central bank with no choice but to implement negative rates. Governor of the Bank of England, Andre Bailey, has not ruled negatives rates but has described evidence of their effectiveness as "pretty mixed" and that negative rates might be most effective when an economy is in a recovery phase for the economy to take full advantage of the negative rates. Analysts predict rates to stay at 0.1%.
A key indicator showing how well the US economy is recovering, Non-farm payrolls is predicted to print 700,000 new jobs, up from 661,000 the month before.
This week ahead is going to be a turbulent one. Strap yourself in, and brace for the ride.
Stay safe, Trade safe. Have a good week!
The Pound against the US Dollar is currently one of the most exciting pairs to be keeping an eye on, as it is essentially fighting between a rock and a hard place. Currently ranging just under 1.30, both nations have events coming up that will significantly shift the currency pair in either direction.
In the UK, we have Brexit negotiations affecting the Pound side of the equation. After the 30th of September passed, the UK is trying to buy time due to the worsening of the Coronavirus in Britain. There is pressure mounting onto Prime Minister Boris Johnson to ensure a deal goes through to avoid a compounding economic and human loss that a no-deal Brexit and terrible Coronavirus conditions bring to the UK.
According to a CNN Business analysis based on Citi and the Institute for Fiscal Studies forecasts, a no-deal Brexit could cost the UK economy $25 billion next year. Laurence Boone, Chief Economist at the Organization for Economic Cooperation and Development, stated that "The Combination of Covid-19 and the exit from the EU single market makes the UK outlook exceptionally uncertain" and that "actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the United Kingdom's economic trajectory for years to come."
The election is heating up with current polls across the Ditch, showing Biden taking a double-digit lead over Trump, with Joe Biden polling at 54%, and Trump polling at 43%. Biden seems to have the advantage over Black, Latinos, Whites with a college degree, and young voters. Conversely, Trump's strongest group continues to be White Evangelical Christians, rural voters, and whites without college degrees.
However, for both, the Coronavirus continues to run rampant. Unfortunately, investors and traders assume that America has given up on the Coronavirus and is learning to live with the virus. They can't get a second wave since they have not finished their first yet. Therefore, a second partial lockdown in the UK in response to the second wave has weighed on the Pound stronger than the US's long first wave.
As for the pair, a Biden Victoria plus positive Brexit talks should push the Pound higher, and the US dollar strengthens, moving past that strong 1.30 mark. However, a Trump win and further deterioration of Brexit talks should see the Pound weaken, and the US dollar strengthens.
The pound against the US Dollar has returned 11.4% since its March lows. As well all know, a lot has happened since March. But what has not come to fruition is the Brexit talks. As the transition deadline for the UK to leave the EU approaches, Brexit talks have suddenly come back into the spotlight. However, Prime Minister Boris Johnson has thrown a wrench in the Brexit negotiations, threatening to break international law by passing local legislation to override certain parts of the Brexit deal.
The pound has been extremely volatile to these negotiations and developments with the Coronavirus. Yesterday, the Bank of England held interest rates at 0.1%, alongside stating that they explored how negative rates might be implemented. The pound dropped 0.6% against the US dollar, touching 1.28663. Petr Krapta, currency strategist at ING, stated that “they were exploring how negative bank rates could be implemented effectively, should the outlook for inflation and output warrant it at some point.
JP Morgan analysts weren’t too excited by the BoE’s announcement, stating that “there was little to be gained from taking action today” and that “should it need to react at a later date, the Bank will benefit from a little extra firepower left at its disposal having not wasted it today”
Brexit – or what doesn’t happen with Brexit. Currently, the EU has given the government until the end of the month to scrap the law they had proposed, or face legal action. Furthermore, they have till December to exit the EU properly as their transition period ends. These two factors have pushed the price of betting against the pound has skyrocketed. Therefore, being bullish on the pound has become cheap. Positive sentiment regarding a softer Brexit and progress on negotiations should push the pound higher.
Second factor: Of course, the Coronavirus. If the pandemic levels off, and economic damage is not as bad as it seems, the BoE may not implement negative rates and may push the pound higher.
Currently, the markets have not priced in the effect of negative rates. However, that may change as we get closer to crucial Brexit deadlines.
The pound is down 2% against the U.S dollar in the past couple of days, on growing prospects that the United Kingdom will leave the European Union without a trade agreement.
Brexit talks are set to continue this week, with UK's Prime Minister Boris Johnson playing hardball with European Officials. He has imposed a October 15 deadline, to which he plans to quit Brexit talks if no deal is reached.
The pounds have mostly forgotten Brexit, with the Coronavirus pandemic guiding everyone's attention away from the non-completion of Brexit.
Seema Shah, Portfolio manager at Principal Global Investors, stated that headlines over the weekend were a "timely reminder that, while the markets have been distracted by the UK's struggle to rejuvenate the economy, Brexit negotiations have quietly been going nowhere."
The main issues include competition, fisheries, and solving disputes.
Further downwards pressure came from the revelation of the UK government planning to release legislation that would override critical parts of the withdrawal agreement – notably the deal that would undermine the agreement that Boris Johnson signed last year to avoid a return to a hard border.
The pound has been rallying since its March lows, up 14.13%. However, it has underperformed compared to its peers. For example, the Australian dollar has rallied 31% since its March lows.
The main issue for the pound comes from its appreciation, not discounting Brexit talks. As headlines start to creep up about Brexit near Boris' October 15 date, the pound's volatility will increase. Petr Krapta, a currency strategist at ING bank, stated that "the Brexit head is back on and sterling is, in our view, unprepared." This comes at a time when the UK's grip on the Coronavirus continues to slip, with daily cases spiking, recording the highest number of daily Coronavirus cases since May.