The market is starting the week in a mixed mood but generally, the risk appetite is still intact. Earnings seasons continue this week as the market watch for fresh clues from the ECB and BoC.
The US-10 yr bond yield’s retracement to 1.6% on Friday is becoming short-lived again. Early on Monday, the yield fell to 1.55% thus lifting the stock market as the demand for safe-havens continues to drop. The S&P 500 volatility index has now flopped to February 2020 (pre-pandemic) which signified total recoveries in the equities market. However, the safe-haven dollar remains on the backfoot despite recent impressive data from the US. While the US employment data have shown huge improvements, inflation remains a major concern as a result of the unlimited QE. Despite the concern, the US government and Fed are not ready to tighten anytime soon.
In the currencies market, the Euro is recovering losses from the Asian session although the minor corrective dip remains intact. The British Pound also made impressive surges on Friday to close the week bullish. However, the currency has started today’s London market faltering. High-beta Aussie and Kiwi are off to recovering from the Friday slump, to continue last week’s massive rally. Yen is the only safe haven making upward moves as a result of a plummeting bond yield although the larger outlook remains to the downside. CAD is retreating from Friday’s recovery as the Oil market and BoC later in the week remain the major focus.
Gold is flying high in the commodities market, supported by a falling yield. The yellow metal is close to 1790 with more room opened to the upside. WTI oil is back at $63. The pre-pandemic supply glut was reported to be over and OPEC+’s decision to keep the current output level at bay has been a major support for the black gold.
Red Crypto Weekend
Meanwhile, the crypto markets are recovering gradually from the Sunday onslaught. There were reports that China’s electrical blackout caused the weekend crash as it lowered the Bitcoin hash rate by 20%. Bitcoin dropped over 6% between Wednesday and Friday after hitting a $64,800 fresh all-time high. However, the plunge became aggressive on Sunday and the flagship crypto plummeted further by 14% in just four hours to touch $51,550 – its lowest price in April. Ethereum, Litecoin and Ripple also dropped to as low as $1950, $235 and $1.13 respectively. However, there have been over 50% recovery of the Sunday slumps on the major cryptos.
Market Market Drivers
Covid-19 & Vaccines
The figures coming from Covid vaccination exercises remain impressive. Globally, over 850 million doses have been administered in 155 countries. Over half of US adults have received at least a dose of the vaccine while Isreal has vaccinated over 60% of its entire population. The Euro-zone and UK have also ramped up the exercise which is expected to continue throughout the year as global economies remain opened. However, despite the impressive vaccine figures, daily reported cases globally have risen above 5 million weekly which is a new record.
The economic calendar is very light in the first half of the week apart from the NZD inflation data on Tuesday.
Wednesday will be huge for the Canadian dollar as the BoC updates its monetary policies. The bank refused to tapper in its last meeting. However, recent employment data from Canada have been very impressive and with the oil price recovery, it remains to be seen whether BoC will wait again or tighten a bit. Meanwhile, the BoC comes after CAD CPI data on the same day. Earlier on Wednesday, cable traders should watch out for the GBP CPI and Gov Bailey’s speech at a BoE’s virtual event.
On Thursday, ECB monetary policies and economic forecasts will hug the headlines ahead of the US unemployment claims figure.
On Friday, market participants will have the opportunity to know the current situation of the Eurozone, UK and US manufacturing and services sectors.
The equities market seems overbought as VIX and VIXY reached their lowest in over a year. The return to risk-off might happen at some point this week. However, the market must react first. The best outlook for the S&P 500, NASDAQ and Dow for new entrants seem to be ‘buying the dip’. The return to risk aversion should start with a massive surge in the US 10-Yr bond yield and recovery on the broader dollar value across the FX space. However, that’s a possibility probably before the mid-week. Currently, the dollar index should plummet to 91 if it splashes the 91.5 level. The current gold rally should continue to 1790-1800 while WTI should find resistance at $63-64. In the first half of the week, more support is expected for high-beta like AUD, CAD and NZD while safe-havens like JPY, USD and CHF should plunge further until there is a sentiment shift.
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