Safe-havens gained last week as the market priced in President-elect Biden’s fresh fiscal package ahead of the January 20 inauguration. This week is set to be buzzed with many high-impact events from geopolitical to economic. Will risk-off prevail again or the markets will be back on top?
Minor corrective dips were seen across the riskier instruments last week. The stock markets shed some profits while the safe-haven dollar adds to the YTD gains. Yen and CHF gained as well while beta currencies like GBP, AUD, NZD and CAD fell sharply against their currency peers.
President-elect Biden has opened a fresh $1.9 trillion fiscal policy alongside a possible tax hike. While the markets have priced-in the former, the latter send sour waves across and thus cut down risk appetite. The market bounced temporarily although but eventually ended the week bearish. Across the stock markets, market volatility shrank. In the FX market, the dollar surged as the Euro was pressured by events in the Italian political space. Gold and Silver ended the week bearish as well as the oil market closing lower. This week is expected to be more volatile due to high-impact events including the US presidential inauguration and banks’ monetary policy statements amongst others. Let’s look at some of these event drivers that could move the markets in the new week.
US Presidential Inauguration
President-elect Biden will be sworn in on Wednesday, January 20. Outgoing President Trump has already conceded defeats after the Capitol incident. However, there are still concerns about whether there would be rioting and protests from Trump’s supporters. Aside from this, market participants might want to decipher some of Biden’s decisions going forward from his Wednesday speech. Will he enforce lockdowns? Is there capacity for more and a larger relief package? Will, he shed more light on tax policies? These are sub-topics that could put direct weight on the market.
According to ourworldindata.org, Covid 19 vaccination has nearly hit 39.5 million doses across 51 countries with over 70% of that coming from Asia and North America. Last week, UK PM said over 4 million people have been vaccinated in the UK. The campaign for global vaccination is increasing. However, Africa and many other countries are still left behind.
Over 2 million people have died from the virus out of over 94.5 million reported cases. The second wave became intensified in late December after it was reported that new strains were discovered in the UK and later in South Africa. Meanwhile, lockdowns could intensify to allow proper vaccination in some countries. However, this effect has been digested by the market as any lockdown will only be temporary. Vaccine hope should continue to provide support for the market and thus boost risk.
Bank policies and macroeconomics
The Central Banks of Canada, Japan and the Euro-zone will all update their monetary policies this week. More hawkish or dovish tones than expected could trigger big moves in their local currencies.
As for macroeconomics, China will open the week with its GDP reports amongst others. Bank holidays in the US on Monday could hamper volatilities but the BOE governor Bailey could spark decent moves across GBP pairs.
Later in the week, the Aussie employment data will take the spotlight into the Thursday Asian session before the unemployment claims and US Philly Fed manufacturing index later in the day. BoE’s Bailey will speak again on Thursday before the Kiwi quarterly CPI data. On Friday, PMIs across the Euro-zone and in Canada and the US will be eyed.
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