Muted Reaction To $1.9T Stimulus

There appears to be a some “sell-the-news” price action in equities, given that a lot of the optimism surrounding another injection of US fiscal stimulus had already been priced in ahead of the keenly-awaited announcement.

Markets are also understandably apprehensive following Biden’s foreboding remarks in addressing his proposal’s costs. A seemingly exhausted stock market reacted to the threat of higher taxes, and the intended hike in the minimum wage, by taking some risk off the table and booking in some profits.

Promise of more fiscal stimulus may come with caveats

There’s already chatter that the incoming Biden administration may not stop at just US$1.9 trillion and could roll out more fiscal stimulus. Such expectations have in recent past buoyed risk assets.

However, if the incoming fiscal support is accompanied by more risk-sentiment dampeners, such as the threat of heightened regulations, that may not have the intended booster effect on equities.

Pandemic woes still evident

Investors will have plenty to digest over the long holiday weekend for US markets. Besides the promise of more fiscal stimulus, market participants have to reconcile the still-heady heights in stock markets with the sobering realities amid the pandemic. Covid-19 cases are still raging throughout the US and Europe, and the vaccine’s rollout needing time to have its intended effect on the real economy.

In the meantime, the economy’s dire need for more support couldn’t be starker. Thursday’s weekly initial jobless claims rose back towards the one million mark to post its highest figure since August. More signs of economic angst may also be unveiled later today. Retail sales may show zero growth in December, while consumer confidence is expected to have dipped this month.

Gold climbs as Powell hushes tapering talk

Spot Gold got a slight lift as US 10-year yields dipped to the 1.11 percent level, after Fed Chair Jerome Powell poured cold water on talks surrounding a potential pullback in the central bank’s bond-buying programme. Although the 10-year yields remain significantly lower than pre-pandemic levels, they have stayed stubbornly above the psychologically-important one percent mark since last week.

The recent steepening of the yield curve indicates that markets are still optimistic about the US economic outlook and the inflation outlook. And with the Fed Chair pledging to provide ample warning time before any such tapering, so as to avoid a repeat of the infamous ‘taper tantrum’ of 2013, Gold bulls can take heart from the continued central bank support that should limit the precious metal’s downside for a while more.

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What Does Trump’s Impeachment Mean For Markets?

Trump now has the unenviable mark of being the only US President to be impeached twice, occurring just days before he is to hand over the reins of the White House to President-elect Joe Biden on 20 January.

“Yet markets cared little for the political drama, as US stocks continue to struggle for meaningful direction.”

Here’s how US benchmark indices fared on Wednesday, with tech counters leading the pack:

  • S&P 500: +0.23%
  • Dow Jones index: -0.03%
  • Nasdaq 100: +0.63%

At the time of writing, S&P 500 futures can only inch higher, although it continues flirting with overbought territory (14-day relative strength index nearing the 70 mark).

However, US equities may receive a double boost on Thursday!

Biden to unveil stimulus plan details

The incoming US President has been teasing global investors about the “trillions” that could be poured into the US economy to help it overcome the pandemic. Such measures are set to be announced later today, which may include US$ 2000 stimulus checks for American households. A stubbornly high weekly jobless claims print, also due on Thursday, could underscore the need for more fiscal stimulus.

Stock markets had clearly reveled at the thought of more incoming US fiscal stimulus, especially in light of Democrats enjoying significantly less political resistance after winning both Georgia Senate runoffs. The S&P 500’s current record high was registered on 8 January, the same week those polls concluded.

“Should markets like what they hear, then the reflation trade may resume across asset classes, potentially recharging the rotation play in equities while sending Gold higher as investors resort to assets that may help them outpace stimulus-fueled inflationary pressures.”

Fed Chair to settle tapering debate?

Fed Chair Jerome Powell also has the opportunity to lay down a solid marker in the tapering debate that has engulfed markets his past week. Given the forward-looking nature, markets have been trying to pre-empt when the Federal Reserve might ease up on their bond-buying programme. Markets thought it could even happen sometime this year, in anticipation of a US economic outperformance that’s been aided by the trillions in both fiscal and monetary policy support.

The shift in narrative sent Treasury yields spiking, Gold prices stumbling, and the Dollar rebounding.

Fed officials have recently sent mixed signals about when they might unwind some of their policy support, although the latest commentary by Fed Governor Lael Brainard appears to pour cold water on the idea.

“A more definitive statement by the Fed Chair himself could cause major moves across asset classes.”

Should Powell shut the door tight on the very notion of tapering in 2021, that could see Treasury yields unwinding more of their gains, dragging the Greenback back down with it, while helping restore Bullion to recent highs.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

What’s Been Moving Gold Prices?

On a week-to-date basis, spot Gold is eking out a 0.6 percent advance at the time of writing. The slight recovery has pared Gold’s year-to-date losses to less than 2%.

From a technical perspective, Bullion’s 200-day simple moving average (SMA) has been called into action once more, playing its role as a key support level. Gold bulls can take comfort from the fact that, since the end of 2018, prices have been trading consistently above its 200-SMA, and the two dips below that line over the past 12 months have been short-lived.

“In other words, Gold’s uptrend that extends back to 2018 remains intact, with the 200-SMA having been a reliable support level.”

Also note that the pullback which began last week could be deemed a healthy move from a technical perspective, considering that Gold’s 14-day relative strength index had reached overbought status by hitting the 70 mark.

“With much of the froth now seemingly cleared, the precious metal may now make a more rational move higher.”

Still, spot prices may have to clear that November high of $1965.46 to embolden Gold bulls further.

How Is Gold Affected By The Dollar And Treasury Yields?

Note that Gold has an inverse relationship with the Dollar, given that the precious metal is priced in USD. In simpler terms, when the Dollar goes down, Gold prices tend to go up, and vice versa.

Also note that Gold is a zero-yielding asset.

When the yields on US Treasuries climb, they make such investments more attractive relative to the zero-yielding Bullion. This could result in a rotation away from Gold to Treasuries, with the latter widely deemed to be a risk-free investment.

With such a context in mind, the recent pullback in Gold prices was the result of a Dollar rebound amid surging Treasury yields.

The 10-year Treasury yields strained towards the psychologically-important 1.20 percent level, after surging 30 percent between the past two Tuesdays (5 – 12 January), reaching its highest levels since March in the process. Since then, the 10-year yields have retreated by about 6.4 percent, while the Dollar index has moderated back below the 90 mark, offering some respite for Gold.

What Is The Outlook For Gold?

“There appears to be enough reasons to remain bullish on Gold, and they revolve around US inflation.”

  • Markets are expecting US inflation to overshoot, with the Federal Reserve stating it will tolerate as such. Considering Gold’s traditional role as a hedge against faster inflation, that should ensure Gold remains well-bid in the lead up to such economic conditions.
  • Real yields for US Treasuries (which take into account expectations for inflation) are in negative territory, which suggests that the yields that investors are expecting to get from US Treasuries aren’t going to overcome the forecasted inflation rate. This should ensure that Gold can maintain its allure as an inflation-beater.
  • There is also a consensus that we could see more Dollar weakness over the coming months, despite rising US yields recently challenging such a narrative. A weaker Dollar should make it easier for Gold prices to explore its upside.

Things To Look Out For This Week:

  • The December US inflation data is due out later Wednesday. A higher-than-expected print may fuel tailwinds in Gold prices.
  • Watch Fed chair Jerome Powell’s speech on Thursday. Recently, there has been some contrast among Fed officials’ views on when to pare back the central bank’s asset purchasing programme (a way to support the economy and financial conditions). The mere suggestion that the Fed could ease up on those asset purchases sometime this year has spurred Treasury yields higher. Then on Tuesday, St. Louis Fed President James Bullard and Boston Fed President Eric Rosengren poured cold water on the idea, prompting Treasury yields to pare down recent gains. Watch for more potential cues out of Powell.
  • Also on Thursday, President-elect Joe Biden is set to unveil his plans for more US fiscal stimulus which he claims would be in the “trillions”. Such swathes of incoming financial aid for the US economy could spur inflationary pressures higher. Should Gold bulls be delighted by what they hear, don’t be surprised to see Gold prices charging upwards.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

 

Political Pressures Weighing On Big Tech Stock Prices

The tech-heavy Nasdaq 100 shed 1.55 percent, compared to the 0.66 percent decline in the S&P 500 and the Dow Jones index’s 0.29 percent drop.

Big Tech’s response to Capitol chaos draws ire from politicians and investors

In the wake of last week’s chaos on Capitol Hill, Facebook has suspended President Donald Trump’s account until at least Inauguration Day, while Twitter has “permanently suspended” his account. Google and Apple have removed from their stores the alternative social media platform known as Parler, which is favoured among Trump supporters. Amazon has also denied Parler access to its web servers.

Such moves have been publicly decried by senior lawmakers in France and Germany, including German Chancellor Angela Merkel.

And markets also made their voices heard, as evidenced in Monday’s performance for these tech stocks:

  • Twitter: -6.41%
  • Facebook: -4.01%
  • Apple: -2.32%
  • Google (Alphabet): -2.31%
  • Amazon: -2.15%

The backlash against social media and tech platforms then fed into a 2.4 percent drop in the FXTM Social Media index on Monday. The index (which comprises Facebook, Google, Twitter, and Snapchat shares in equal weights) has been trading sideways since the November elections, in contrast to the broader gains in US equities over the past two months.

Will Big Tech’s stock prices post new record highs soon?

These recent contentions surrounding censorship and freedom of speech isn’t likely to have a long-lasting impact on Big Tech’s fundamentals, compared to the other woes facing the sector. Note that these tech behemoths had been facing lawsuits and tightened scrutiny from US and European lawmakers, and such political pressures are enjoying bipartisan support.

It remains to be seen how long this latest backlash will last, though such bouts are not new to these tech giants.

“As investors continue digesting these risks, while also contending with the stretched valuations in these stocks, Big Tech is set to have a harder time posting new record highs compared to benchmark US stock indices in the months ahead.”

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Key Market Events This Week

Besides the world’s struggles with the Covid-19 pandemic that blanket market sentiment, here are some key events to look out for over the coming days:

  • Monday, 11 January: Key Fed officials may offer clues on asset purchasing pullback this week
  • Wednesday, 13 January: Democrat-controlled House may vote to impeach Trump, again
  • Thursday, 14 January: Biden unveils stimulus plans, Fed chair Powell speech
  • Friday, 15 January: JPMorgan kicks off US earnings season

Monday, 11 January

Given the forward-looking nature of the markets, investors have begun pondering when might the Federal Reserve begin easing up on their asset purchasing programme, which has been a major supportive element for financial markets since the pandemic. Starting Monday, various key Fed officials are scheduled to offer their respective economic outlooks over the coming days, culminating in Fed chair Jerome Powell’s webinar appearance on Thursday.

“Considering that 10-year US Treasury yields are already at their highest levels since March, the mere hint of a pullback in the Fed’s asset purchasing programme could trigger another yields spike, which could come at the expense of the non-yielding Gold.”

Wednesday, 13 January

With the chaotic scenes from last week’s Capitol breach still fresh in the world’s mind, Democrats are moving to impeach outgoing US President Donald Trump. That is, unless Vice President Mike Pence and the cabinet remove Trump first by invoking the 25th amendment, which appears unlikely.

“While this could be mere political drama which markets are more than willing to ignore, it still presents a risk that prudent investors must continually monitor.”

Thursday, 14 January

The reflation trade could be given fresh legs when President-elect Joe Biden outlines plans for “trillions of dollars” in added US fiscal stimulus. This would be a much-needed boost, especially in light of last Friday’s surprise contraction of 140,000 jobs in the December US non-farm payrolls report.

It remains to be seen which sectors would benefit the most, but Gold prices could see a pickup on heightened expectations for stimulus-fueled inflationary pressures, while US stocks may well ride higher on such optimism.

Friday, 15 January

The US earnings season will kick off with JPMorgan leading the way once more. Banking stocks are back in vogue, as investors anticipate more fiscal stimulus as well as an extended ultra-accommodative policy stance by the Fed. The S&P 500 Financials Index has already gained 4.65 percent so far in 2021, making it the third best-performing sector on the benchmark index, behind Materials (+5.68%) and Energy (+9.31%).

Although the Q4 financial results that will be released over the coming weeks are backward-looking in nature, investors would be paying more attention to the business outlooks for these companies. Commentaries that harbour a more positive performance in the year ahead could spell more upside for share prices.

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Stocks Set For More Record Highs

From a pair of tense Senate runoffs, to a mob breaching Capitol Hill, and even a shock supply cut from Saudi Arabia, global investors have had plenty to take in this week.

“Yet, the buying momentum in stocks has shown its resilience.”

After overcoming the slight wobble on Monday, US equity benchmarks have since posted new record highs on Thursday, with futures contracts still in the green at the time of writing. The MSCI ACWI index, which measures the overall performance of stocks across emerging and developed markets, also registered its highest ever close yesterday. Asian equity benchmarks are climbing on Friday, with the MSCI Asia Pacific index advancing some two percent already so far this year.

Reasons Aplenty To Look Up

Stock market bulls have many reasons to expect further gains. Investors are getting more comfortable wading further out into risk-on waters, considering that the spillover from 2020’s downside risks have abated, be they Brexit concerns, or the US election cycle (with outgoing US President Donald Trump finally stating his intent for a smooth transition).

Now, investors are gravitating towards the increased likelihood of more incoming US fiscal stimulus in light of the Democrats’ sweep of the Georgia Senate runoffs. The latest FOMC meeting minutes underscore policymakers’ will to hold fast to its supportive stance. The Covid-19 vaccine continues its global rollout, with Moderna’s vaccine receiving the EU’s blessing this week.

“Such elements are fostering a highly supportive environment for global equities, affording investors the luxury of looking past the persistent pandemic woes.”

Dollar Bears Likely Unfazed By US Hiring Slowdown

Fundamentally-driven investors will be focusing on the US non-farm payrolls release later today, amid expectations for a mere increase of 50,000 jobs in December. Such figures would be a far cry from the millions of jobs that were restored in the months after the initial national lockdown was ended. A December NFP print of 50,000 would also be a mere one-fifth of the jobs added in the month prior, signaling that the post-lockdown recovery is stalling.

Still, the dissemination of more fiscal stimulus under the incoming Biden administration should help tide the US economy over. After all, the president-elect did vow this week to mail out those US$2,000 checks would be sent out “immediately” if Democrats won the Georgia Senate runoffs, which they did.

“With such expectations intact, the Dollar index may not have much legs left in its recent rebound.”

Gold Supported By Hopes Of Faster US Inflation

10-year Treasury yields breaching the psychologically-important one percent mark this week, along with the Dollar’s rebound, have dealt a slight setback to Gold prices. Yet, the precious metal is still trading above the psychologically-important $1900 level, and remains on course for a sixth straight weekly gain.

“Bullion remains supported by the reflation trade, amid expectations that Democrats’ control of the White House, Senate, and the House should pave the way for more incoming fiscal stimulus that can drive up US inflationary pressures.”

However, should December’s non-farm payrolls report later today offer more evidence of a stalling US jobs market, that may dampen Gold prices in the immediate aftermath, while waiting for more inflationary boosters to come through. The Fed’s conveyed tolerance for an inflation overshoot also bodes well for the precious metal’s upside.

“Spot Gold still harbours the potential to reclaim the $2000 handle, especially if the precious metal’s tailwinds can gather pace as 2021 unfolds.”

Still, as commented by Fed officials this week, there appears to be a risk of a pullback in the Fed’s asset purchasing programme should a US economic outperformance crystalize in the latter part of the year. Another massive yields spike may then trigger the further unwinding of Gold’s recent gains.

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Saudi Surprise Sends Oil Soaring

The shock decision was in stark contrast to market expectations leading up to this past Monday’s OPEC+ meeting, with the alliance of major Oil producing nations due to decide whether or not to hike output levels by 500,000 bpd again in February.

The shock announcement saw Crude oil prices breaching the psychologically-important $50/bbl mark for the first time since February. However, with its relative strength index now flirting with overbought levels, perhaps an immediate-term pullback is on the cards.

Likewise, Brent Oil, which is the global benchmark, reached its highest levels since February on the news. At the time of writing, it’s on the cusp of reclaiming the $54/bbl handle.

Here’s a recap of OPEC+ output decisions since the global pandemic:

  • April 2020: will slash output by a record 9.7 million bpd beginning May 2020, or equivalent to around 10% of global supply, to offset the demand destruction wrecked by the pandemic.
  • July 2020: to restore some 2 million bpd starting August 2020 amid green shoots of the global economic recovery.
  • December 2020: to raise output by 500,00 bpd in January 2021, as opposed to the previously intended 2 million bpd, given the resurgence of Covid-19 cases and tighter virus-curbing measures in major economies.
  • 4 January 2021: OPEC+ meeting adjourned as members were unable to reach consensus on February output levels – whether to rollover January’s output settings or raise them by another 500,00 bpd, as favoured by Russia.

Cracks within OPEC+ may resurface

Although Saudi Arabia’s decision has been cheered by Oil benchmark prices, it risks laying bare the power struggles within the alliance.

“Saudi Arabia’s unilateral supply cuts clearly showcases Riyadh’s preference for higher Oil prices, although other producers prioritize retaining market share.”

In recent weeks, Russia had been pushing for an output hike of 500,000 bpd, for fear that non-OPEC+ producers such as US shale oil producers may otherwise step in and fill the gap in the global markets. Under this latest arrangement, Russia can merely raise its production by a measly 65,000 bpd for each of the next two months. In recent past, the likes of Nigeria, Iraq, and the UAE have had their respective requests for output hikes denied.

Risk of moral hazard

If Saudi Arabia is apparently willing to do the heavy lifting for the other OPEC+ members, then the will to comply with existing output ratios may be diminished. In other words, other OPEC+ members who had been vying to preserve their market share may be emboldened to do so, knowing that Saudi Arabia would be there to step in to shore up prices with its own supply cuts.

The competing goals (higher prices vs. market share) may lay bare the fragility within the OPEC+ alliance, and one merely has to revisit the Oil price capitulation that was seen in March 2020 to realize what a divided OPEC+ alliance could do to Oil prices.

“In order for Oil prices to continue its return to pre-pandemic levels, not only must the global economic recovery stay the course, OPEC+ members must also demonstrate a unified will and maintain the discipline to manage output levels.”

Otherwise, the Oil price recovery could turn out to be a fleeting phenomenon.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

How Might Markets React to Georgia Senate Runoffs?

The S&P 500 posted a 1.5 percent drop while the Dow Jones shed 1.25 percent on Monday, which was their biggest single-day decline respectively since the week before the November US elections. The S&P 500 experienced its worst start to the year since 2016, as investors battled with persistent pandemic woes amidst rising global coronavirus infections that exceeded 85 million. The US posted a record high for daily cases while the UK reimposed a nationwide lockdown until February 15.

Still, at the time of writing, US equity futures are edging higher, potentially setting up yet another episode of turnaround Tuesday.

Also, investors have to contend with looming US political risks once more, with Georgia on their mind.

And unlike the languid pace of the timeless tune, Georgia On My Mind (first recorded in 1930 by Hoagy Carmichael before being propelled to global fame by Ray Charles in the 1960s), the events out of the state later today has the potential to jolt markets once more.

Why are the Georgia Senate elections important?

The November race for these two Senate seats did not produce a clear winner. Hence, today’s runoffs aim to settle the score. It’s a high-stakes contest, as the results from ‘take two’ of this race could determine whether Democrats will have enough political mass to push their agenda through over the next two years.

As things stand, the Senate makeup currently tilts towards Republicans 52 to 48. Should Democrats win the two seats that are up for grabs, that would make it an evenly-split 50 seats each for Republicans and Democrats. However, that would then set up incoming Vice-President Kamala Harris with the tie-breaking vote, enabling her to force through the will of the Democrats, and that of President-elect Joe Biden.

How might stocks respond to the results?

This is a tricky one.

A “blue wave” scenario could still materialize, with Democrats having ultimate sway in Washington DC. Such a unified government could well push through larger rounds of fiscal stimulus in the near-term, which is a positive for US equities.

However, investors would also be cognisant of other policies that are typically associated with Democratic lawmakers, such as tax hikes or heightened regulations. And such measures may serve as potential dampeners on stock prices.

In the immediate aftermath of the November polls, US stock markets had clearly revelled at the thought of a gridlocked government, with the S&P 500 climbing 11.8 percent since the eve of the presidential election. Investors will now have to navigate these political uncertainties in ascertaining whether benchmark indices should be pushed to new record highs as a result of Tuesday’s Senate runoffs.

How soon will we know the results?

Keep in mind that the outcome of today’s polls could take days to be declared as was the case for the November elections, which took the state 10 days before officially declaring the results. On top of that, the voting outcome could still face legal challenges thereafter as well. Hence, US markets could be blanketed with a layer of political uncertainty until the official results are known.

Dollar likely not spared

Besides stock benchmarks, investors’ initial reactions to the Georgia Senate runoffs may also be manifested in the Dollar index (DXY). Ramped up expectations for the so-called “blue wave” may heap more downward pressure on the Greenback on hopes that incoming fiscal stimulus may face less political resistance and potentially boost US inflationary pressures, thus eroding the Dollar’s appeal. However, should Republicans be seen as having the advantage in this latest political contest, that may offer support for the beleaguered Dollar, and push the DXY back above the psychologically-important 90 mark.

And with Georgia on many an investor’s mind, perhaps the pandemic woes can be put on the back burner, at least for a while.

Written on 05/01/2021 08:00 GMT by Han Tan, Market Analyst at FXTM

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Cautious start to New Year

Investors apparently have had enough merry-making and are getting down to business on this first trading day of 2021. After all, there are a few key events that could trigger heightened market volatility this week.

US political risks may prompt pause in stocks rally

S&P 500 futures are holding steady during the Asian morning session, after the benchmark index registered a new record high on 31 December 2020. Still, some apprehension may creep into equity markets as investors await the official outcomes of the Georgia Senate runoffs on Tuesday.

” One only has to revisit the declines in the S&P 500 leading up to the Nov. 3 elections as a reminder that markets generally do not delight in political uncertainty. “

Gold breaks out of downtrend

Gold bulls are however starting off the new year on the right foot, as the precious metal broke meaningfully above the psychologically-important $1900 level for the first time in nearly two months.

” The weaker US Dollar, which is expected to be a prolonged theme in 2021, has allowed Bullion to breach the upper bounds of its recent downtrend. “

From a fundamental perspective, Gold’s role as a hedge against inflation is buffered as the Federal Reserve maintains its ultra-accommodative stance, coupled with expectations for bigger incoming US fiscal stimulus, especially if Democrats garner enough political muscle after the Georgia Senate runoffs. With a key momentum indicator (MACD) pointing north, Gold prices may seek to be restored to its 2020 glory days, fueled by investors attempts to hedge against the expected overshoot in US inflation.

Oil edges higher ahead of key OPEC+ decision

Today’s OPEC+ supply decision however is of more immediate importance for Oil investors, as the alliance of major producers gather to decide whether to increase their output in February. After having raised their collective production by 500,000 barrels per day (bpd) at the start of 2021, OPEC+ has to ascertain today whether the global economy is ready to absorb more of its supplies next month.

The alliance not only has to contend with an uncertain global economic outlook, but also competing interests within the group. Some need Oil prices to push even higher from current levels by way of keeping output unchanged while allowing the global economy to recover. Others are more concerned about being to sell more of their Oil to gain some much-needed income and market share as they’re already comfortable with where prices are at currently.

” In short, OPEC+ must tread carefully or risk unwinding some of the the near-170 percent gains in Brent that have been recorded since April. “

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When could we see $60 Oil again?

US benchmark stock indices such as the S&P 500, the Dow Jones, and the Nasdaq 100 closed at new record highs.

However, US Crude prices did not share the same level of enthusiasm for the incoming fiscal stimulus.

Having rallied hard since early September, gaining as much as 44 percent to hit its highest levels since March, Crude Oil has since plateaued. From a technical perspective, this was a healthy move, given that prices had far extended into overbought territory leading up to Christmas day, judging by its 14-day relative strength index. WTI crude futures fell 1.26 percent on Monday, before paring losses at the time of writing.

Similarly, Brent Oil had gained 44 percent during that same 7-week period, before consolidating after such a rapid ascension. Brent futures registered a 0.8 percent decline yesterday and is now striving to erase those losses.

Recall that much of those gains since early November coincided with positive developments surrounding a Covid-19 vaccine, and Oil prices were further boosted by expectations that OPEC+ would restore its Oil supplies at a slower pace next year. The narrative held by markets to justify the surge in Oil prices was that the lower-than-previously-expected output hike would occur alongside a vaccine-enabled demand recovery. Such supply-demand dynamics diminished the risk of oversupplied conditions in global markets, while warranting higher prices.

“However, it appears that the easy gains are now over”.

What’s standing in the way of higher Oil prices?

Oil bulls are taking a breather for the time being, as they digest some looming downside risks.

As the world waits for the Covid-19 vaccine to reach a sizeable portion of its population, Covid-19 hospitalizations in the US are at record levels, while the lockdown measures in southern California looks likely to be extended. Spain has recorded a death toll of more than 50,000 due to the pandemic. Asian economies are ramping up their attempts to halt the spread of Covid-19 within their borders, with the likes of Indonesia and Taiwan raising the bar on foreign visitors and flight crews. Many nations have already imposed bans on flights from the UK on fears over the potentially faster coronavirus strain.

“Such virus-curbing measures have a dampening effect on global demand for Oil, as economic activity struggles to overcome the pandemic, which in turn is serving as a drag on prices”.

Key OPEC+ moves in early January

While the resurgent coronavirus is eroding demand, some OPEC+ members appear eager to restore more of their supply. Recall that the alliance of major Oil-producing nations had decided earlier this month to lower its output hike to 500,000 barrels per day (bpd) starting from this Friday, January 1st. That 500,000 bpd figure is lower than the previous plan of hiking output by some 2 million bpd.

However, OPEC+ is due to meet next week to decide on February’s production levels, and already Russia has indicated its willingness to increase output some more. Russia’s Deputy Prime Minister has cited the $45-$55 range as “most optimal” for Oil prices. Still, other major OPEC+ members require Oil prices to be higher in order to fund their respective fiscal plans.

Hence, it remains to be seen where the balance of power lies in next Monday’s meeting, and that may have a major say on whether Oil can continue climbing higher.

“In short, a return to $60 Oil would require a disciplined restoration of OPEC+ supplies, coupled with sustained signs that the global economy is taking meaningful strides into the post-pandemic era”.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Buoyant start to the final week

Stocks futures Stateside are near record highs as EU-UK trade talks are wrapped up (for now) and President Trump finally signed off on the virus relief bill.

Risk sentiment is on the rise with European stocks and notably the German Dax trading up 1.5% to fresh new highs, above the previous top set back in February before the pandemic triggered a sharp global selloff in stocks. This is actually the first trading session in Europe since the Brexit trade deal was signed off, so it has given traders the first chance to react to that momentous agreement. UK markets are closed for a bank holiday.

Of course, markets are much thinner at this time of year and we sometimes see quite violent moves for no apparent reason. But it seems this year we are much calmer and the transition to the new year will be a lot smoother. That path has been made easier by the Trump signoff and the package should give a significant boost to the US economy next year. Indeed, Goldman Sachs economists think the world’s biggest economy will grow at an annualised pace of 5% in the first quarter of next year, an increase of 2% from their prior estimate.

Softer Dollar in quiet trade

The greenback is a touch milder today with the risk mood upbeat and bond markets offered. Traders are eyeing up the pivotal 1% yield in the US 10-year Treasury again as inflation expectations move higher once more. There is record treasury issuance this week with $176 billion worth of bonds being auctioned.

DXY lows are of course in play at 89.63 and if we do break and hold below here, then the February 2018 low at 88.25 offers the next line of support.

Sterling disappoints

Although a Brexit deal has been passed which means we will not see a rise in tariffs on goods after the end of the year, GBP is lower against the Euro and even the Dollar. Significant work and agreement are still needed on major industries which were not covered in the trade deal, especially financial services. Relations have no doubt also been scarred by the last few months and let’s not forget – this is one of the hardest possible Brexit outcomes.

Sterling bulls are desperately keen to aim for the recent cycle high at 1.3624 made on 17 December. We are squarely in the middle of the bullish channel from the September lows but there is little momentum in these thin markets at the moment.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Stocks climb as President Trump signs off on stimulus package

S&P 500 futures are attempting to create a larger gap above the psychologically-important 3700 line, with the spot index a mere 0.5 percent away from its highest-ever closing price, which was set on 17th December.

Should the optimism surrounding President Trump’s signing of this aid package hold over the coming days, it’s highly possible that the S&P 500 could post a new record high before 2020 is over.

Risk appetite spared from twin-negative-scenarios

Equity bulls are being heartened as two notably negative risks for markets were averted.

Firstly, President Trump’s approval of this Covid-19 aid package averts a US government shutdown while bringing some much-needed relief to millions of Americans. Also, it comes hot on the heels of a post-Brexit trade deal that was clinched between the UK and the EU just on Christmas Eve.

The prospects of a delayed US fiscal stimulus package and the disruptive effects from the much-feared no-deal Brexit had weighed on risk appetite. Now that those two major downside risks have all but diminished, risk assets should have little qualms pushing higher as they close out this remarkable year.

Asian stocks to ride on China’s successes

Asian stocks are also kicking off the final week of the year on a risk-on note. Japan’s Nikkei 225 is hovering around its highest levels since 1990, although the 27,000 handle may be just beyond the reach of equity bulls this year. Still, they can take plenty of heart from the near-13 percent year-to-date gain for the benchmark index for Japanese equities.

Likewise, the Hang Seng index may find its return to 27,000 elusive over the few trading days left in 2020, despite having breached that psychologically-important mark back in late November. However, Hong Kong’s benchmark index remains more than six percent lower so far this year.

Still, Asian stocks can draw broad support from China’s continued economic recovery.

The November industrial profits in the world’s second largest economy, which was released on Sunday, grew by 15.5 percent compared to the same month last year. China’s superior ability to contain the Covid-19 pandemic suggests that it could become the world’s largest economy sooner than expected. According to the Centre for Economics and Business Research, China could leapfrog the US and lay claim to that prestigious title sometime within this decade, possibly by the year 2028, which is about five years earlier than the previous estimate.

China’s growth prospects bode well for regional markets, while solidifying Asia’s role as the epicenter of global growth in the post-pandemic era.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

How Might the Fed’s Decision Affect US Markets on Wednesday?

The S&P 500 ended a run of four consecutive days of losses, which had been its longest losing stretch since September.

The 3700 level remains a tough barrier to break for the time being. However, given the tailwinds in play, it should only be a matter of time before the bulls can attain critical mass to push this benchmark to new record highs.

“Risk sentiment has been cheered on by the same themes that have dominated markets in recent months.”

US fiscal stimulus

Democrats and Republicans appear to be inching towards a deal for the next US fiscal stimulus package. However, the current proposal on the table is valued at US$748 billion, which is diluted from the previous versions that once had a headline grabbing figure of US$2.2 trillion. Still, the US economy could do with any amount of financial aid from the government right about now, given the waning momentum in its recovery.

Positive developments on Covid-19 vaccine

First, it was Pfizer. Now, it’s Moderna’s turn. US regulators on Tuesday declared Moderna’s Covid-19 vaccine to be safe and effective, which paves the way for its emergency use authorization. With more vaccines blanketing the US, the hope is that a more positive health response from the population can build a more solid foundation for the US economy to recover.

Why does the Fed meeting matter to investors?

Next up, global investors will be keeping a close watch on the outcome from the Fed’s two-day meeting, which began on Tuesday. The Federal Open Market Committee (FOMC) is due to announce their policy decision later Wednesday (early Thursday at 3:00AM Hong Kong time).

“The Fed is highly unlikely to make any adjustments to its benchmark rates, and is expected to keep them at rock-bottom levels until 2023. Instead, what investors want to know from this meeting is how much policy support can be expected out of the US central bank, in what form, and how soon.”

Which assets could be affected by the Fed’s statements today?

  • US stocks – Hints of more incoming monetary policy support (asset purchases) could mean further gains for stocks.
  • Gold/Dollar – The Fed is likely to point to weaker demand having a drag on US inflationary pressures. Such commentary may offer support for the beleaguered US Dollar, while dulling Gold’s shine as a hedge against faster inflation.

The Dollar index (DXY) is also ripe for a pullback, with its 14-day relative strength index already reaching oversold levels. A pullback of note in the DXY could heap more downward pressure on Bullion prices.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Why Is the Pound Climbing Today, Even as Brexit Deadline Closes In?

GBPUSD is trading around 0.7 percent higher, as the currency pair’s dip below its 50-day simple moving average proved short lived, at least for the time being.

Likewise, Sterling is clawing its way back against the Euro, with EURGBP unable to hold its head above the 0.92 psychologically-important mark.

The Pound’s gains have translated into downward pressure for the Dollar index, given Sterling’s 11.9 percent weightage on the DXY.

Brexit talks thrown yet another lifeline

On Sunday, UK Prime Minister Boris Johnson and European Commission president Ursula von der Leyen urged their respective negotiators to press on with Brexit talks. This was welcomed news for Sterling because, going into the weekend, the commentary from both sides had sounded rather forlorn about ever reaching a Brexit trade deal. Recall that, after a disastrous dinner date last week, both leaders had set Sunday (yesterday) as the deadline for deciding whether negotiations should even go on.

Brexit deadlines apparently aren’t definitive

According to the Cambridge dictionary, the word “deadline” means, “a time or day by which something must be done”.

But when it comes to Brexit, its deadlines seem to be rather arbitrary.

Delayed deadlines have been a hallmark of this drawn-out saga since the June 2016 referendum. Even the Brexit date itself, which was initially set for March 2019, had to be pushed back until January 2020.

What is the next key date to look out for?

The Brexit transition period will end on 31 December. This is immovable.

With less than three weeks to go, it remains to be seen whether the UK and EU can agree to a deal that governs the UK and EU’s trading relationship starting 1 January, 2021.

A no-deal Brexit is forecasted to wreak more economic damage on the UK economy that is still reeling from the pandemic’s impact. It’s estimated that, with a hard Brexit, the UK could experience an 8.1 percent reduction to its GDP over the following 10 years. The Bank of England has already warned that such a scenario could have a longer-lasting impact on the UK economy than the pandemic.

So why hasn’t Sterling fallen further?

Although Pound traders have indeed grown weary of these topsy-turvy Brexit ride, past instances have taught them to believe that the worst-case scenario can be averted.

Sunday’s news underscores this narrative. The fact that both Johnson and von der Leyen have asked negotiators to go the “extra mile” shows the tremendous amount of apprehension towards a no-deal Brexit. And in keeping with such hopes, there have been recent reports that Brussels is preparing for contingency plans, that may make for a “friendly no-deal” Brexit.

Such plans could soften the negative economic reaction to a hard Brexit, which is also offering support for the Pound, at least for now.

Still, to be clear, Sterling is weaker on a month-to-date basis against all G10 and Asian currencies.

How is the Pound expected to fare through the rest of 2020?

Despite the relative resilience shown in spot prices, the derivatives markets show a heightened level of caution baked into Sterling’s projected path over the coming weeks.

Over the next one month, investors are most bearish on the Pound compared to the rest of its G10 peers’ prospects against the US Dollar. Markets are also expecting Sterling to be the most volatile G10 currency going into 2021.

Although Brexit fatigue remains palpable, expect Sterling to remain sensitive to every weave and bop in this final stretch of the Brexit saga.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Euro on Knife’s Edge

EU members are battling to reach a consensus over the bloc’s US$ 2.2 trillion stimulus and budget deal. Separately, negotiations over a post-Brexit trade deal between the UK and the EU are widely expected to conclude this week, though the outcome remains far from certain.

EU staring at political and financial paralysis

Let’s start with the EU’s recovery fund and spending plans for the 2021-2027 period, which is seen as key for the EU economy to help cope with the pandemic. The US$ 2.2 trillion package is facing political resistance from Hungary and Poland, with these two non-euro members threatening to veto the plans. Both countries are now being pressured into taking their foot off the veto pedal, or risk losing out on billions in aid.

If invoked, it could force the EU into a partial shutdown by 1 January. That means member nations can only operate on emergency monthly budgets, as opposed to being able to roll out the full array of government financial support in a time of deep economic pain.The stakes are indeed high for both sides of this political standoff, as it risks delaying the much-needed funds at a time when the continent could use more fiscal support sooner rather than later.

Take Europe’s largest economy for example. Although Germany’s recently-released October factory orders, industrial production data, and retail sales all exceeded market expectations, the road ahead still poses downside risks, as warned by the Bundesbank. Covidd-19 curbing measures are still in place until next month, which means that the Q4 GDP print may fall back into contraction.

Pullback necessary for EURUSD

Yet, markets appear relatively sanguine about such negative risks for the EU. At the time of writing, the Euro is gaining against most of its G10 peers on Tuesday, while EURUSD is holding around its highest levels since April 2018 and remains above the psychologically-important 1.20 level.

However, from a technical perspective, the recent pullback appears to be in order for the world’s most-traded currency pair, given that EURUSD’s 14-day relative strength index had crossed the 70 mark, which denotes ‘overbought’ levels. Perhaps the catalyst for a more pronounced pullback could be confirmation that Poland and Hungary are pressing ahead with their veto threats.

Brexit negotiators in last-ditch deal frenzy

Then there’s the well-documented drama surrounding Brexit. The UK and EU are hoping that a post-Brexit trade deal can be secured in the near-future, with UK Prime Minister Boris Johnson heading to Brussels for crisis talks.

Although both sides are still looking to reach a compromise over key sticking points, such as access to British fishing waters, adding to the complications is France’s threat to veto the deal if its details are not to their liking.

Note that the 31st December deadline Brexit is set in stone; the UK will leave the EU starting 2021.

The question now is whether these two heavily-intertwined economies can seal a deal which cushions the ensuing economic fallout in the post-Brexit era. The UK economy is forecasted to suffer see a GDP decline of 1.5 – 2 percent in the event of a no-deal Brexit, while Bank of England officials have warned that a hard Brexit could have a more lasting impact on UK businesses and economy compared to the pandemic.

Months of uncertainty have kept EURGBP mostly within the 0.886 – 0.916 it has adhered to since May. A no-deal Brexit could well jolt this currency out of this range.

However, the threat of a no-deal Brexit has not deterred the Pound from taking advantage of the weaker US Dollar. However, the long-term 1.35 resistance level is once again proving to be the undoing on GBPUSD’s attempts to push higher.

All eyes on EU summit, ECB decision

Both the EU’s recovery package and also the post-Brexit trade deal are set to feature prominently at the two-day summit for EU leaders beginning 10 December. Ideally, agreements can be sealed on both fronts to be brought before the summit this week.

Should both major deals be secured, that could also go a long way in ensuring the efficacy of the ECB’s additional policy stimulus, which is widely expected to be rolled out at its 10 December meeting.

Otherwise, there could be chaos surrounding European assets. The Euro and the Pound could then face major bouts of volatility as investors reprice the economic outlooks for the EU and the UK.

The FXTM EUR Index, which measures the Euro’s performance against six of its equally-weighted G10 peers (USD, CHF, GBP, NZD, CAD) could also do with a picker-upper. The index appears set for a ‘death cross’ forming on the daily chart, with its 50-day simple moving average (SMA) closing in on its 200-day counterpart, and such a technical event could herald further declines for the asset.

Written on 8/12/20 07:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Key Levels Beckon for Dollar Index, Gold, Pound

Still, major currencies are about to test key levels in the immediate future, and it remains to be seen whether we will get meaningful breakouts or rejections.

Having broken below the psychologically-important 92.0 level, the Dollar index (DXY) is just some 20 basis points away from registering a new two-year low, as it eyes the September trough of 91.74. After falling by over 10 percent from its March peak through end-August, the DXY has been moving sideways over the past three months, potentially setting up a meeting between its 100-day simple moving average (SMA) with its 50-SMA once more. The Greenback has weakened against all of its G10 peers, except for the Japanese Yen, so far this week.

Investors had refused to allow the Greenback to capitulate even after the US elections, given persistent fears over the economic realities incurred by Covid-19, which had kept this safe haven currency buoyant above the 92.0 mark. The Dollar index has also been receiving support from 10-year US Treasury yields which have been ticking upwards in recent months, even though real yields remain mired in negative territory. Still, the overall bearish outlook for the US Dollar remains intact, given expectations for more incoming US stimulus and a central bank that is more tolerant of an inflation overshoot.

In short, a sustained break below 91.74 could herald another leg down for the Dollar index, with the 91.0 level beckoning next. A sustained decline could see the Dollar index dipping into the 88-90 range, as it last did in 2018.

Gold could test 200-SMA support

The weakening US Dollar has only provided fleeting relief for Gold prices, as the precious metal has been dealt a massive blow by the positive developments surrounding a Covid-19 vaccine. The ensuing risk-on sentiment has seen Gold prices tumble towards its 200-day simple moving average.

The last time it ventured below this technical level proved to be a brief affair back in March, with Bullion then going on to post a new all-time high in August. However, a lot has happened in the months since the major market dislocations seen in March, when the pandemic first swept through major economies. Gold bulls must continue to hope that the reflation trade remains intact to help Gold point north once more.

Pound takes advantage of Dollar weakness

Should the Dollar climb another leg lower, that could see GBPUSD testing the 1.35 resistance level, which has been relatively resilient since the Brexit referendum was held in June 2016. The British Pound is strengthening against most other G10 currencies today, despite Chancellor of the Exchequer Rishi Sunak warning that the UK faces an “economic emergency”, with the government forecasting the UK’s deepest recession since 1709.

As long as markets are not dissuaded that a post-Brexit trade deal will be secured with the EU before the year-end deadline, then the Pound could well chart its course towards that key 1.35 level, with a positive confirmation of a UK-EU trade deal potentially serving as a trigger for a breach. If markets were to be blindsided by a hard Brexit, that could see GBPUSD crashing down into sub-1.20 levels.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Thanksgiving Week: Retailers’ Roaring Return?

Typically, Black Friday sales are accompanied by scenes of bargain-hunters camping outside popular retail outlets, braving the cold, only to bum-rush the store once it’s open. Sometimes, overly eager shoppers literally bust down doors and even get into fist fights over the best deals.

This year, things are set to be very different, due to the Covid-19 resurgence across America.

Instead of the usual frenzy at the physical stores, the stampede for bargains has been very apparent in the stock markets. Investors have made a beeline towards companies that had been beaten down by the pandemic, as they price in a return to in-person shopping, enabled by a Covid-19 vaccine.

Such a narrative has sent stocks in mall-based retailers surging on Monday:

  • Macy’s soared 15 percent (month-to-date gains: 67.63 percent). Macy had also reported a better-than-expected Q3 performance last week.

  • American Eagle Outfitters jumped 7.32 percent (month-to-date gains: 32.6 percent). The company is set to release its Q3 earnings after US markets close on Tuesday.

  • Gap advanced 6.93 percent (month-to-date gains: 33.98 percent). Gap is also set to unveil its quarterly results after US markets close on November 24th.

  • Urban Outfitters climbed 4.44 percent (month-to-date gains: 41.72 percent), before announcing after markets closed on Monday that its Q3 earnings-per-share exceeded estimates.

Overall, the S&P 1500 Apparel Retail Index has surged by nearly 86 percent since its March low, and is now a mere 2.14 percent away from its highest ever closing price, posted on February 20th this year. Still with the stocks of many of these so-called “nonessential retailers” now reaching overbought territory, perhaps a pullback can be expected in the near-term.

Pandemic-fueled bonanza

This wave of optimism has been fanned by a report from the National Retail Federation, which expects US holiday sales to post a 3.6 to 5.2 percent growth compared to 2019’s US$729.1 billion that was spent during the year-end shopping season. The industry’s leading trade group expects a “strong finish” to what has been a tumultuous 2020, given that Americans who were not able to spend on other items such as vacations and in-person entertainment (sporting events, movies, etc.) will instead pour between US$755.3 billion to US$766.7 billion into their year-end shopping spree. Such an outlook augurs well for the overall US retail sales figure, which could only muster a mere 0.3 percent growth in October compared to the month prior.

Retailers have to deliver results

However, execution risks remain. It remains to be seen how well these retailers can handle the incoming swarm of orders, be it for curbside pickup or direct shipping. Amazon has already braced itself by hiring over 25,000 more workers for its warehouses this year, while adding an extra 100,000 seasonal workers to handle the expected tsunami of online orders.

And the expected rebound in footfall isn’t assured. The pandemic may have left longer-lasting scars, potentially enforcing a lasting shift in shopping habits. Consumers may feel a lot more reluctant to return to in-person shopping and may have grown accustomed to buying items online. And with a spate of job losses in the US economy, with weekly jobless claims still over three times more than pre-pandemic levels while the unemployment rate remains close to seven percent, American consumers’ purchasing power may need more time to recover.

“Dark Winter” ahead?

Still, a fresh round of US fiscal stimulus by the incoming Biden administration could help dampen some of these downside risks on US retail activity. Otherwise, once the year-end shopping spree fades, these retailers might have been to brave a long, cold winter before they can welcome warm bodies back into their stores once more, to justify the eye-popping gains in their shares of late.

Written on 24/11/20 08:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Euro Set for Eventful Week

EURUSD is now testing the top-end of its recent range, with momentum still pointing north. The FXTM Trader’s Sentiment is also net long on the currency pair.

Euro PMIs may show further signs of economic gloom

The Euro is set to react to the latest assessments as to how the EU economy is holding up under the strain of Covid-19’s resurgence across the continent, and Monday will see the release of its November PMIs.

Although the manufacturing sector is expected to remain in expansionary territory for a fifth consecutive month, perhaps more concerning is the services sector, where conditions improved in July and August only to have deteriorated since. The tightening virus curbs across the continent this quarter are stoking fears of a double-dip recession, and worse-than-expected PMI readings today could prompt the Euro to pull further below the 1.189 level against the Greenback.

Brussels battles internal and external political feuds

Even when faced with such dire economic prospects, the EU’s US$2 trillion economic recovery package is being held up by objections from Hungary and Poland. This economic relief package was due to have been rolled out in January, but will now be delayed. At least in this regard, the EU finds itself in the same boat as the US, which is also contending with delays to a fresh round of fiscal stimulus. Such dynamics in turn is keeping EURUSD mostly within the 1.16 – 1.19 range since September.

Besides finding itself engaged in political brinksmanship with fellow EU members, Brussels also is also in a deadlock with the UK in its negotiations over a post-Brexit trade deal. News reports over the weekend suggest that an agreement could be announced by early December, prompting EURGBP to pull further below its 200-day simple moving average today.

Should investors be greeted with more signs of a deadlock rather than a major breakthrough over the coming days, that risks unwinding losses in EURGBP, with the currency pair potentially trading back above the psychologically-important 0.90 level, as markets then brace for a hard Brexit come January 1st. After all, the UK is expected to bear the bigger brunt than the EU in the event of a no-deal Brexit.

However, as things stand, the FXTM Trader’s Sentiment is still net short on EURGBP, as traders continue to expect a post-Brexit trade deal being secured at the 11th hour.

Incoming monetary policy support may buffer Euro

Then on Thursday, November 26th, the ECB is set to release the minutes from its October monetary policy meeting, which will be scoured for clues as to when and how the central bank could inject further monetary stimulus. More overt signs of incoming central bank support, likely to be officially announced at the December ECB meeting, could help shore up the Euro’s performance in the interim.

The bloc’s currency has strengthened by more than one percent against the Japanese Yen, Swiss Franc, and the US Dollar so far this month, while also holding year-to-date gains against most of its G10 peers.

Investors will have plenty to digest this week

And with the Euro accounting for 57.6 percent of the Dollar index (DXY), it could well dictate the DXY’s performance this Thanksgiving week. The US will have plenty on its plate besides turkey and stuffing this week, as Thanksgiving’s Eve (Wednesday) will feature the release of the FOMC meeting minutes as well as a US data dump, which includes the second reading of the US Q3 GDP, weekly jobless claims, and October’s personal spending data.

In short, there’s plenty to keep global FX markets on their toes in this final full week of November.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Tesla to Join S&P 500 Club in December

This is a major achievement for the 17-year-old electric vehicle maker, though it had been roundly expected for a while now. Still, the jubilation over the news sent the stock surging by as much as 15 percent in after-hours trading.

September began in torrid fashion, with Tesla’s shares plummeting by well over 30 percent between August 31st and September 8th amid the broader selloff in US equities. Tesla’s 21 percent drop on September 8th alone was the stock’s largest single-day decline in its history, coming right after news that S&P Dow Jones indices had snubbed the automaker in its last quarterly review.

Despite bouncing off the $330 level and climbing about 23.58 percent since that September 8th low, the stock still found itself being squeezed into a narrowing sideways range. A divided US government is likely to prevent President-elect Joe Biden from pushing ahead with his green agenda, and such curtailed policy-making prospects had been weighing on the EV-maker’s shares. Lately, the stock also had to contend with the ongoing rotation away from tech darlings and into sectors that are more sensitive to the real economy, especially sectors that have been hard hit by Covid-19.

But all that could change with this latest milestone.

Tesla is going to be the biggest-ever addition to the blue-chip index, so much so that S&P Dow Jones indices may have to do it over two separate occasions, as opposed to adding the entirety of Tesla onto the S&P 500 all in one go. After all, the company’s market value has increased by 387.76 percent so far in 2020, and is set to grow even larger when US markets open later today.

From a valuations perspective however, Tesla’s cult-like status is getting way ahead of itself. With a PE ratio of 646.6, Tesla is much more expensive that Amazon, which has a PE ratio of 91.69. For further context, the likes of Apple, Alphabet, and Facebook all have PE ratios that are closer to the Nasdaq 100 index’s PE ratio of 37.43.

Still, there could be plenty more upside from an earnings perspective, keeping in mind that Tesla has just registered its fifth consecutive quarterly profit. Electric cars made up less than three percent of total US auto sales in 2019, hence the company’s decision to build a second US factory in Texas. Tesla also opened a new factory in China earlier this year, with another being built in Germany.

The added production capacity is being cheered on by Tesla bulls, and its inclusion into the S&P 500 may only amplify demand for the stock. That’s likely to be the case for passive funds, who may have to sell between an estimated US$30 billion to US$40 billion worth of other stocks to make way for the Tesla behemoth, given these passive funds’ mandate to mirror the S&P 500.

Inclusion into the S&P 500 can offer additional support for recently-included shares. Etsy, Catalent, and Teradyne have experienced this first-hand, judging by their ability to outperform the broader S&P 500 since the previous quarterly review was announced.

Since US markets closed on September 4th:

  • Etsy: +12.12%
  • Catalent: +25.5%
  • Teradyne: +36.36%
  • S&P 500: +5.83%
  • Tesla: -2.45%

Tesla has not been able to close above the $500 psychologically-important level in split-adjusted terms following its 5-for-1 stock split on August 31st. Perhaps inclusion into the S&P 500 may just be the catalyst for yet another crowning achievement. Either way, this development surrounding Tesla could have repercussions well beyond the stock itself, and could send waves across the broader US stock market.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

What’s Next for Gold?

So far this week, spot Gold prices have been whipsawed across a wide range exceeding $100. On Monday, it hit a near two-month high of $1965.59 before careening down to the $1850 mark, all within the same day. The precious metal dropped by as much as 5.85 percent on Monday, which erased all of Gold’s month-to-date gains, and more, while registering its largest single-day decline since August 11th.

Despite the latest attempt to claw its way back up, Monday’s drastic drop leaves Gold below its 100-day simple moving average for the time being, with its 50-day moving average threatening to follow suit. For context, so far this year, Gold has not spent more than a week at a time trading below that key technical level, having recovered promptly after breaking below that mark in mid-March and in end-October.

However, with its three-month downtrend proving hard to shake off, and spot still more than seven percent lower from its all-time record high registered on August 7th, are the heady days now over for Bullion bulls?

The vaccine teaser

The boost to Gold prices, stemming from the US presidential elections being called in Joe Biden’s favour, was dealt a major blow to the gut by positive developments surrounding the Covid-19 vaccine. The news that Pfizer Inc. and BioNTech SE have a Covid-19 vaccine that can prevent over 90 percent of infections prompted Gold traders to forecast a faster return to normalcy.

Such a narrative eroded Gold’s appeal as a traditional safe haven asset; hence Monday’s steep decline. Should the vaccine indeed prove to be an enabler of a steeper global economic recovery, that may also raise the bar on further monetary and fiscal stimulus, potentially further dampening more of Gold’s tailwinds.

Still, there remain major doubts over the timeline of the vaccine’s global rollout and its true efficacy. Such doubts may keep Bullion supported until there is more clarity about what the vaccine will actually achieve.

Political brinkmanship frustrates

While US stocks are brimming at the thought of a divided US government, such prospects in turn cap Gold’s upside. With Democrats unable to push through a larger fiscal stimulus package, it threatens to derail the US economy’s nascent recovery and weaken the momentum in US inflationary pressures.

Although a vaccine that allows a swifter return to economic normalcy could still deliver a shot in the arm for US price pressures, such a mix may be deemed less potent than a multi-trillion-dollar fiscal boost. And monetary policy can’t do it all alone, with Fed chair Jerome Powell harping on the fiscal side to carry their fair share of the stimulatory burden.

Look out for potential catalysts

With the initial post-election euphoria having fizzled out, investors have quickly shifted their attention to the lame-duck Congress session, to see if lawmakers can look past the wounds freshly inflicted from the bruising election battle and agree to a fresh round of US fiscal stimulus. Failing that, a pair of January run-offs in Georgia could then dictate whether Democrats will have enough muscle through the chambers of Congress to push their agenda through. Such a make-up in the US Senate could help restore some of Gold’s sheen, pending the extent of the vaccine’s global rollout by then.

Even if the masses in major economies do embrace the vaccine, the mental scars from the pandemic may still linger on, and such persistent fears may continue dulling global economic activity. Such an economic environment may still necessitate further stimulus measures from policymakers, which would then boost the precious metal’s appeal as a hedge against inflation and a preserver of wealth.

And of course, US Treasury yields will continue to have a dominant say over Gold’s performance. Should the 10-year yields breach the psychologically-important 1% mark, that may well spur more selling of the precious metal.

Gold bulls still waiting at the alter

However, for those who still harbour hopes that Gold still possesses enough reasons to launch another attempt at a new record high, they still must be given fresh impetus to send prices charging higher. Until then, at least the precious metal can still find some measure of comfort from US real yields, which remain in negative territory, which in turn is also keeping Gold’s arch-nemesis, the Dollar, in check.

Written on 11/11/20 08:00 GMT by Han Tan, Market Analyst at FXTM

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Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

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