Currency View by OFX

Last week’s news

• The last two days of trading for January were a rollercoaster of news related to retail investors and the impact they are certainly having not only on individual stocks (GME closed the week around 400% higher than expected) but also on the overall market. The S&P lost more than 3% during the week, erasing January’s gains, closing down 1% for the month. The Volatility Index is still managing to stay above 30 and the USD is attempting a break above its 50-day moving average. January closed on a risk-off setup, except for the US 10 year Treasury, which is still trading above 1.05%.
• Three of Europe’s largest economies slowed by less than expected in the final quarter of last year, despite fresh measures to contain the coronavirus that restricted activity by consumers and businesses. Germany and Spain grew by 0.1% and 0.4% respectively according to data published last Friday. Meanwhile, the French economy shrank by 1.3%, which was much better than the 4% contraction expected by economists. However, with a slow rollout of COVID-19 vaccines and a slow pace of recovery, risks haven’t disappeared. The ECB forecasted the Eurozone GDP would shrink by 2.2% in Q4 2020 which would mean a 7.3% decline in GDP over the course of 2020.
• In the US, the economy’s rebound also slowed in the fourth quarter, as a deadly surge of cases weighed the economy down over its holiday season. US GDP came out at 4% on an annualised basis for Q4 with economic output increasing 1% when compared with the previous quarter. The spike in seasonal COVID-19 cases also meant jobless claims remain at historical highs. The new figures have added to the pressure that has led US President Joe Biden to propose a $1.9tn fiscal stimulus plan, to mitigate the hit of the economy in the first part of the year.
• Britain’s coronavirus death toll passed 100k last Tuesday, more than twice the number of civilians killed in the Blitz, with Boris Johnson declaring ‘I’m deeply sorry for every life that has been lost’. Britain now has the highest total of deaths of any European country. On that measure 147 people have died for every 100k in the UK, a figure only topped in the world by Belgium and Slovenia. The IMF forecasts showed that the UK economy would not recover lost output until 2023. The Prime Minister’s failure to swiftly order lockdowns last spring and last autumn has been blamed by many for the high death toll.

Looking ahead

• The IMF has warned that emerging markets limited access to COVID-19 vaccines poses a risk to global financial stability, saying shortages could exert a drag on economic recoveries in low-income countries. EM stocks have rallied almost 8% so far in 2021 in dollar terms, adding to a 19% surge in the final 3 months of 2020, which has mainly been thanks to the introduction of COVID-19 vaccines and a more risk-on attitude. Head of the IMF’s capital division Tobias Adrian explained that the risk to financial stability from potential emerging market shocks ‘depends on how broadly negative surprises are spread across countries.’ Other crucial financial stability risks identified by the IMF include virus mutations and the ‘premature withdrawal of policy support’.
• In Australia, the media reports the government is committed to letting stimulus through JobKeeper to end in March as “you can’t run the Australian economy on taxpayer’s money forever”. The comments come from PM Morrison, who also said in the future emergency measures would be temporary and have a clear strategy from a fiscal perspective.

Key market events this week

• Tuesday
  • RBA Interest Rate Decision
  • EUR GDP Growth Rate YoY & QoQ (Q4)
  • NZD Employment Change & Unemployment Rate (Q4)
• Wednesday
  • EUR Core Inflation Rate YoY (Jan)
• Thursday
  • AUD Trade Balance
  • BoE Interest Rate Decision
• Friday
  • AUD Retail Sales
  • RBA Statement on Monetary Policy
  • CAD Balance of Trade (Dec)
  • CAD Employment Change & Unemployment Rate (Jan)
  • USD Non-Farm Payrolls (Jan)
  • USD Unemployment Rate (Jan)