A fresh week is starting in the financial market. Traders and investors will expect as much volatility as was seen last week. Ahead of the US employment data, will the dollar add to gains?
The market will not be void of big moves this week. The US is expected to push the 1.9 trillion pandemic package to the Senate for final legislative approval. This is more like a formality thus the market could price in the eventual passage. Investors and traders will therefore be wary of a very unlikely turn-down from the Senate. Aside from this, market participants will again be interested in economic data this week as a pointer to general recovery as the world move on with vaccination against the virus.
Last Week Recap
Last week was very eventful across multiple asset classes. The week started with a moderate risk-on sentiment before ending on a wild risk-off as investors’ mood changed. The equities market all dropped significantly in the latter end of the week for the safe-haven dollar and Yen. However, the supposed risk-off bond yield had its biggest fall since January as inflation fear was downplayed.
In the US, the S&P 500 was down by over 2.3% while Dow and NASDAQ went similarly with -1.4% and -4.9% losses respectively. The Asian market was the worst hit as China’s Shanghai index went down by over 5% and Japan’s Nikkei shed over 4%. Hang Seng and Nifty also took big hits of 6.7% and 3% losses respectively. European markets had their own share of the bearish week as FTSE and DAX had 2.1% and 0.55% setbacks respectively.
In the FX space, the dollar roared back to life across the board. The dollar index (DXY) which was initially down by over 0.7% (below 90) in the course of the week, saw a massive bid that pushed it to close the week at 90.88 having gained a net 0.59%. The greenback will aim for the 91.6 February high if the last week’s resurgence continues in March. The dollar strength thus dragged down EURUSD and other majors after all hitting a multi-year height against the greenback. High-beta FXs also took big hits across the board. The Yen, on the other hand, took a break from the wild fall it suffered in most of February.
In the commodities market, Gold was pressured to complete its biggest monthly loss since December 2016. A rising dollar lowered the price of the precious metal. Silver was down by over 2.5% to complete a bearish February. On the other hand, the energy market closed the week bullish despite the Friday slump. Oil benchmarks have now gone back to the pre-pandemic prices. WTI and Brent exchanged for $61.5 and $64.4 per barrel respectively. Meanwhile, the crypto markets took a break last week after stealing the spotlight the most this year. Bitcoin continues to shed profit and traded below $44,000 over the weekend. A rising dollar and large block profit-taking are tagged to be responsible for the bearish crypto market last week.
The Week Ahead
Last week, the US House approved President Biden’s $1.9 trillion pandemic relief fund. The Senate is expected to finalize the disbursement of the fund this week. No hassles are expected. Also, investors are looking forward to more stimulus package with clues linked to President Biden’s intention to spend more on infrastructures together with the recent Yellen and Powell’s comments. We might see early support for the stock market in the first half of the week as a result.
There is no doubt that vaccine hopes have reduced the pressure on policymakers. Over 239 million doses have been disbursed worldwide. Reports came out last week that Pfizer-BioNtech vaccines are effective in providing immunity against the virus. Countries are therefore ramping up immunization while relaxing restrictions. It’s believed that the global economy should completely bounce back by the end of the year against the year 2023 that was earlier predicted in the last quarter of 2020. The market might be pricing in the positive vaccine reports, but an overly negative report will break down the current positive mood. Traders should therefore give some attention to news emanating from this angle.
Macroeconomics: US Job Data, RBA rate leading the pack
The spotlight will be on the US employment data on Friday. Aside from the figures, the job data releases will give an insight into the state of the US labour market recovery. Fed Chair Powell emphasized keeping the current monetary easing policy intact. Over 10 million unemployed Americans mean that recovery is still in the early stage. The unemployment rate in January dropped to 6.3% – way behind the pre-Covid era. Also, 49k jobs were added in January below market expectation. Meanwhile, reduced initial jobless claims in the last few weeks amid positive vaccine reports has raised the market expectation for the February data. The market expects 148k new jobs in February and a 6.4% unemployment rate. Traders should watch for large deviations in these data as they could cause big spikes and define how the week could end for the greenback
Aside from the job data, traders should also take note of Fed Chair Powell’s speech on Thursday at a WSJ online event. Also, the PMIs on Monday and Wednesday are important. Elsewhere in America, key data include Canada GDP growth, current account and PMI surveys.
Across the Atlantic, we have the euro-zone and UK Markit PMI data on Monday albeit with low impact expectation. ECB President Lagarde will speak at an event on Monday as well. On Wednesday, the UK annual budget release will be the focus of the market during the European session.
In addition to key events to watch out for are the Australian monetary policy meeting and cash rate decision on Tuesday. The market expects an unchanged 0.1% cash rate. The following day, quarterly GDP data for the same country will be released. The market expects a 2.4% expansion which is quite lower than last quarter’s. Later in the day, all ears will be for RBNZ Governor Orr’s speech.
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