Mixed reactions in the markets last week as stocks surrendered vaccines advantage. It was a very volatile Monday when Pfizer released a report that its Covid vaccine is 90% efficient in preventing contagion. Risk-on was massive as S&P 500 roared to a fresh high while Gold, Yen, and Swiss Franc tanked like they’ve never done in weeks. However, as the week went on, the stock market surrendered much of the profits. S&P 500 still closed the week bearish with some distance away from the weekly top. Safe-haven assets, on the other hand, made significant recoveries from the earlier slump. The change in direction was a result of worse than expected Covid cases in Europe and the US. Heavy lockdowns in Europe and curfews in the US raise concerns as to whether economic recoveries will not fall short further. However, downside effects are supported by vaccines optimisms.
For the currencies, USD shed some gains later in the week. EURUSD closed the week bearish after hitting its highest price in two months. Sterling got pounded after touching 1.33 handle as Brexit November 15 unofficial deadline flops. NZD hits 0.69 after RBNZ announced extra stimulus through funding and lending program.
(FLP) and a more robust fresh Large scale asset purchase program while keeping its official cash rate unchanged at 0.25%. AUD & CAD lost some ground as risk-off wrapped the week.
Meanwhile, Gold and other metals were red while Oil prices got a decent boost, although the picture changed in the second half of the week.
The week ahead – what to expect
As usual, we are going to have some economic data to deal with this week. The biggest by a wide margin is concerned with the Aussie. After Governor Lowe of the RBA speaks on Monday, he will read the bank’s monetary policy meeting minutes on Tuesday before Wednesday’s employment data are released.
In Europe, ECB President will speak at different events. Also, the UK retail sales data will come up on Friday.
In America, Tuesday core retail sales in the US. Similar data on Friday in Canada after Wednesday’s inflation data (CPI) in the same country.
While these events could cause significant moves, spotlights would be on the US politics, Covid19, and the ongoing Brexit negotiation between the EU and Britain.
Covid 19 second wave
Europe has been struggling with Covid 19 second wave since September. Lockdowns and curfews in the geographical zone has become a norm. Reports show that the US is on the same path. Some states have already enforced curfews. With numbers and deaths nearing new highs last seen in April, the restrictions could get tougher and a complete lockdown is not out of the picture. The pandemic will worsen economic data for the last quarter of the year. How deeply this will affect global risk sentiment will hugely depend on the developments in the area of the vaccines, fresh stimulus package and how soon the US politics gets settled. Adding to the expectation that Joe Biden might enforce lockdown in late January up to February, uncertainties could therefore weigh on the markets in the coming weeks. We might, therefore, see equities and riskier FX like AUD, NZD and CAD and commodities like oil plunge next week. On the other hand, metals, dollar and other safe-havens could continue the current recoveries across the board. However, despite the pandemic resurgence, adverse effects should be lightened by hopes of vaccines and fresh stimulus.
Trump and Biden battle on the way to the white house
In the US, major media outlets have already projected, and some announced Joe Biden as the President-Elect of the country. This is a traditional norm, although not legally backed. States have till December 8 to get results ready in time for the January 20 official inauguration of the new administration that will preside over the world’s largest economy till 2024. The market has already priced-in a Joe Biden win and now anticipates the next stimulus package that would follow amid a possible Biden lockdown to contain Covid second wave.
Deal or no-deal Brexit?
The bulls have been in control of the British Pound market in the last two months. This has been largely due to a weak dollar and the hopes that a Brexit deal would be struck between the negotiators of the two parties. However, talks have extended beyond the unofficial October 25 and certainly November 15 deadlines. Although talks can continue till the official December 31 exit, but the longer this takes, the more likely that the Sterling will fall under pressure. With the country currently on a lockdown, the Sterling bull might have been capped at 1.33 especially if the dollar pushes decent moves to the upside. However, the two parties have expressed progress in talks but according to a Reuters report, the relationship between Britain and the EU is not as smooth as it appears. A no-deal Brexit is bad for GBP while a deal is good. Meanwhile, a no-deal would lead to a more devastating effect.
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