The United States will release its Q4 GDP second estimate together with some other fundamentals this week. Meanwhile, currency traders could be more interested in Fed Chair Powell’s testimonies and the RBNZ monetary policy. Aside from the fundamentals, the risk drivers remain vaccine developments, stimulus and the expected global economic rebound.
Last Week Recap
It will be another busy week as traders and investors analyze where the real opportunities are. Last week ended mixed. Therefore, the dollar and equities market ended the week bearish. The dollar index was pressured toward 90.2 at the end of last week. However, the stock market failed to reciprocate with the appropriate surge. Investors are taking the back seat until the recovery starts reflecting on the real economic data. The US last quarter’s GDP data showed a 4% growth while the retail sales data showed a robust improvement. However, employment reports haven’t been as buoyant. Last week’s disappointing jobless claim is sending negative signals and could pressurize the dollar more into the new week. Also, the US Treasury Yield added to gains and thus raised more concerns among investors concerning inflation.
On the other hand, the developments around the US stimulus package opened bids for equities at some point last week. The $1.9 trillion Covid easing package is expected to be approved by Congress this week. However, the market is more interested in the recovery data and the progress of the vaccines especially against the new mutations of the virus. The mixed reaction pushed the safe-haven dollar further downside, but the S&P 500 completed a bearish week for the first time in February. Oil and metals also closed dovish. Overall, safe-haven currencies were pressured while the high-beta FX rallied to multi-month highs.
The Week Ahead – What are the drivers?
US Stimulus & Powell
The US Stimulus will take the spotlight again this week. Speaker Nancy Pelosi said on Thursday that the House of Rep will try to approve the $1.9 trillion package before the end of February. Meanwhile, President Biden with his blue-wave Congress is planning to go the extra mile with another package that includes an extra $1,400 payout for most Americans and further spending on infrastructures.
Also, the Fed has planned to keep the current rates at near-zero until there is full recovery despite inflation worries. With Janet Yellen expecting the recovery to be complete in a year, it remains to be seen whether there will be a Fed policy shift. Traders and investors will scrutinize Fed Chair Powell’s testimonies this week at the Senate to decipher what’s currently at stake.
An Israeli study shows that Pfizer-BioNTech vaccines appeared to prevent recipients from being infected with the virus. According to Bloomberg, the vaccine was ”89.4% effective at preventing laboratory-confirmed infections”. The study also added that the vaccine was 99% effective at preventing deaths from the virus.
So far, over 205 million vaccine doses have been administered in 92 countries. Change in the daily and weekly reported cases are also sloping to the downside gradually. Generally, there has been a lot of optimism from the vaccine front. However, new mutations remain the biggest roadblock.
Nevertheless, lockdowns are expected to be eased although gradually. The UK is planning to re-open with schools set to re-start in March. German schools are set to open earlier on Monday despite the recent spiking contagion rate.
At the moment, the positives are more than the negatives. However, traders should watch what happens around Covid and vaccines in the new week.
The next OPEC+ meeting is on March 4. Meanwhile, the debate concerning whether the cartel should maintain the current output deal or restore the supply cut it enforced during the pandemic, will take the central stage. Oil traders are watching closely as the two of the powerhouses of the group – Saudi Arabia and Russia seem to be on different sides of the debate. The debate will include how to go ahead with restoring as much as 500,000 barrels per day agreed in December. Also, the group will want a conclusion as to how Saudi Arabia’s voluntary 1 million BPD cut will go.
Oil prices are back to the pre-pandemic prices – highest in over a year. Whether oil producers will jawbone the energy market and by how much is a big risk factor. Will they prefer the current prices (or lower) together with higher output or maintain the current production with better prices? The latter is more likely but there seems to be a barrier – Saudi Arabia with a bargaining chip. Traders especially energy (Oil products) and petro-currency traders should therefore add this event to their watchlists.
The calendar is loaded this week with economic data. However, the spotlight will be on Fed Chair Powell’s testimonies before the US Senate banking committee on Tuesday and Thursday. BOC’s governor’s speech will also be scrutinized. Also, the Reserve Bank of New Zealand monetary policy report will be of big interest among traders. The G20 meeting will end the week on Friday.
In between, there are loads of low and medium-impact economic releases. The US will release the second estimate GDP together with durable goods, PCE index, consumer confidence, durable goods orders and some PMIs. The Euro-zone countries will also release their GDP updates together with the UK jobs data, the zone’s business survey among others. In Canada, traders should look forward to the average weekly earnings, producer’s prices final reading and trade balance. In Asia, China’s January’s house prices, Japan’s inflation reports among others will. In Antarctica, Australia’s fourth-quarter construction output and private sector credit will be watched.
Economic data are expected to have the biggest impact on the market since Covid, as they are a pointer to whether the expected recovery is happening and by how much. The decision-makers will also be watching with keen interest. The impact will be short-term. However, they could form the basis of the next banks’ and governments’ policies.
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