Gold Weekly Analysis: Price Drops Amid Stimulus and Poor Data

The price of gold has declined further amid incoming U.S. President Joe Biden’s fiscal stimulus and poor economic data, which is a bearish sign.

The weakness in the gold market continued last week. As the chart below shows, the London P.M. Fix declined below $1,840 last Friday (the price of the yellow metal later declined even further, i.e., below $1,830).

The downward trend is a bit disturbing given the poor economic data reported last week. First, the jobless claims increased from 784,000 on January 2 to 965,000 on January 9, 2021 , as one can see in the chart below. This increase surpassed market expectations and indicates that there is a long way ahead for a full recovery in the U.S. labor market.

Second, U.S. retail sales declined 0.7 percent in December from the previous month . Importantly, the decrease was larger than the expected 0.1 percent drop. Third, the Empire State Index increased 3.5 percent in January. Although the index grew, it rose at a slower pace than in December and below expectations.

All these economic reports show that the U.S. economy has slowed down, and that we could see more stimulus coming in an effort to stimulate economic growth. Indeed, on Thursday, Jerome Powell excluded any tapering of the quantitative easing in the near future , saying that he “expect[s] that the current pace of purchases will remain appropriate for quite some time”. The recent weak economic data that show slack remaining in the labor market can only reassure the Fed that it should continue providing accommodation and not think about raising interest rates .

Moreover, on Thursday (Jan. 14), Biden unveiled a massive stimulus plan worth $1.9 trillion to support the economy amid the COVID-19 epidemic . The aid package, that would be on top of the $900 billion stimulus adopted by Congress in December, includes $1 trillion in direct checks to Americans, about $440 billion for small businesses particularly strongly hit by the epidemic, and about $415 billion to fight the coronavirus and speed up the distribution of vaccinations.

The continuation of the dovish monetary policy and expansion of the easy fiscal policy should theoretically send the price of gold higher.

Implications for Gold

They should, but gold has gone south instead. Therefore, the drop in the price of gold amid poor economic data, Powell’s remarks, and Biden’s announcement is a bearish signal .

However, it might be also the case that we will see a replay of March, when the first wave of the pandemic initially hit the precious metals market. Investors were stocking up cash then, selling both equities and gold. We observed a similar pattern on Friday, so we could see a reversal after some time.

Moreover, Biden’s fiscal aid, if adopted, would increase U.S. government spending, budget deficit and public debt even further. As a reminder, the federal government spent a record $6.5 trillion in fiscal 2020, while the national debt has already risen by almost $7.8 trillion during Trump’s presidency. According to the Committee for a Responsible Federal Budget’s projection from early January, the U.S. fiscal deficit would total $2.3 trillion for fiscal 2021. However, with Biden’s new stimulus, it would be much larger and could even surpass the record deficit of $3.1 trillion for the last fiscal year.

So, the ballooning fiscal deficits and debts, together with a recession caused by the pandemic and the Great Lockdown , should be sufficient reasons to be cautious and hold part of one’s investment portfolio in safe-haven assets such as gold . Yet many investors are still turning a blind eye to the negative effects of a fiscal stimulus. But just because they cover their eyes, the elephant will not disappear from the room. Indeed, the gold elephant – and gold bull , his cousin – will not disappear, although they may hide for a while .

If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

 

USD/JPY Fundamental Weekly Forecast – Higher-Yields, Strong Risk Sentiment Supportive for Dollar/Yen

The Dollar/Yen posted a two-sided trade last week, but after a promising start for the bulls, the early surge fizzled and the Forex pair closed lower. Driving the price action was choppy movement in U.S. Treasury yields which started out with a surge to a 10-month high on Monday, but ended the week with a slight drift lower.

Last week, the USD/JPY settled at 103.872, down 0.094 or -0.09%.

Stabilizing U.S. Treasury yields helped lift the U.S. Dollar to its highest level since December 10 against the Japanese Yen last Monday, though investors remained bearish on the greenback’s near-term prospects.

Treasury yields had jumped about 20 basis points in the previous week on expectations that new fiscal stimulus will boost economic growth and increase Treasury supply after Democrats won control of the Senate.

The catalyst for the jump in rates were the two elections in Georgia the first week in January, which sparked the return of a relation trade. The Georgia Senate run-off opened the door to the possibility of very significant additional stimulus.

After getting an initial boost from the Treasury surge, rates peaked along with the USD/JPY and drifted lower the rest of the week. The catalyst behind the weakness was the shedding of demand for riskier assets which drove investors out of risky currencies and equities and into the safe-haven Japanese Yen.

Weak U.S. economic data and concerns over President-elect’s new stimulus package also drove investors out of riskier assets and into the Japanese Yen.

President-elect Joe Biden outlined a $1.9 trillion stimulus package proposal last Thursday, saying bold investment was needed to jump-start the economy and accelerate the distribution of vaccines to bring the coronavirus under control.

Weekly Forecast

U.S. Treasury yields fell on Friday after retail sales data came in below economists’ expectations and following President-elect Joe Biden’s proposed $1.9 trillion stimulus program. Yields had jumped ahead of Biden’s announcement late on Thursday that he hopes to jump-start the weakened U.S. economy and accelerate the distribution of vaccines to bring the coronavirus under control with new funds.

But yields came back down following the announcement and dropped further after data on Friday showed worse-than-expected retail sales for December.

This week is going to see some of the same price action until investors decide on the direction of Treasury yields.

A risk-off scenario will drive yields lower as well as the USD/JPY. If investors decide that risk is back on then look for yields to rise, taking the U.S. Dollar higher against the Japanese Yen.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Weekly Forecast – Longs Could Abandon Ship if Yields Continue to Rise

Gold finished an uneventful week lower after posting a mostly rangebound trade as investors continued to search for a bullish catalyst to drive prices higher. What is starting to become clear to many of them is that gold is an investment that competes with stocks, bonds and currencies, or basically any asset that pays investors to hold it. Furthermore, gold bulls may also be starting to realize is that the fundamentals change and that the promise of more and more fiscal and monetary stimulus may not be enough to drive prices higher.

Last week, February Comex gold settled at $1829.90, down $5.50 or -0.30%.

Trying to trade the headlines has been a problem for gold traders also especially when brokers tell the newswires that gold is going up because of “safe-haven buying”. What does that mean anyway? We’ve seen time over time that the true safe-havens are the U.S. Dollar, Treasury Bonds and the Japanese Yen. Gold sometimes has the appearance of a safe-haven which may be confusing investors but I think it wears the hat of a funding investment at time. I mean where do you think the money came from that started the stock market surge in early November.

We saw last week that problems getting the vaccinations distributed, rising coronavirus cases, weakening economic data and a dovish tone from the Chairman of the Federal Reserve failed to fuel a rally in gold. And why was this? Rising Treasury yields and safe-haven demand for the U.S. Dollar.

It’s rising yields that should be the biggest concern for gold investors at this time as the February futures contract hovers just slightly above 50% of last year’s March to August rally at $1780.50. This is likely to be the key level that dictates the direction of the market over the near-term.

Buyers could come in on a test of $1780.50 this week. This is because it represents value to investors. The actual support zone is formed by the 50% level at $1780.50 and the 61.8% level at $1705.20. On November 30, buyers came in at $1767.20, helping to fuel a nearly $200 rally in about 30 days.

Will they come in again between $1780.50 and $1705.20? I think so, but will we see another prolonged rally? I am not confident in that taking place unless we break the long pattern of lower tops. Furthermore, 10-Year Treasury yields would have to break under their December lows to create enough upside momentum in gold. And that would happen if economists start predicting a recession in 2021.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Fundamental Weekly Forecast – Will Bulls Betting on Late January Polar Vortex Be Disappointed?

Natural Gas futures closed higher last week, helped by a recovery in prices on Friday as traders reacted to mid-session weather reports calling for regional blasts of cold in key demand areas late in the month. The news was enough to scare some of the weaker shorts out of the market but forecasts calling for generally comfortable conditions across most regions of the Lower 48 during the third week of January helped to cap gains.

Last week, March natural gas futures settled at $2.696, up $0.040 or +1.51%.

US Energy Information Administration Weekly Storage Report

The EIA reported last Thursday that domestic supplies of natural gas declined by 134 billion cubic feet for the week-ended January 8. On average, the data were expected to show a drop of 123 billion cubic feet for the week, according to analysts polled by S&P Global Platts.

Total stocks now stand at 3.196 trillion cubic feet, up 126 billion cubic feet from a year ago, and 218 billion cubic feet above the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for January 15-21, “A weather system with rain and snow will extend from the Great Lakes to the Southeast the next few days with highs of 30s to 50s for a minor bump in demand, although countered by mild conditions over the rest of the U.S. with highs of 40s to 70s. Frigid air with lows of -10s to 20s will arrive across the Rockies and Northern Plains next week, although more than countered by warm versus normal highs of 40s to 70s over the South and East.”

Weekly Forecast

Prices could trade rangebound this week because of generally comfortable weather conditions across most regions of the Lower 48. This could cap gains while strong demand for liquefied natural gas (LNG) provides the support.

Traders will be keeping an eye on the ever changing outlooks for the last week in January. According to Natural Gas Intelligence (NGI), the final week of January holds promise for intense cold settling in over the Northwest and Plains before moving east. This could result in several days of freezing temperatures over large swaths of the country.

“We view the January 26-29 period as one of the best chances this winter for cold to finally come through,” NatGasWeather said Friday.

If the prediction for a polar vortex – a cold snap that develops in the atmosphere above the North Pole and sends harsh blasts of freezing temperatures throughout the Northern Hemisphere – holds true then look for upward pressure on domestic gas prices.

If there is no polar blast of cold air then prices will retreat. However, I don’t see a test of the recent lows unless there is a significant drop in demand for LNG.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Weekly Forecast – Firming US Dollar, Global Demand Concerns Driving the Price Action

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished mixed last week as the rally ran out of steam amid new coronavirus-related demand concerns and worries over a slowing U.S. economy.

The news was just bearish enough to encourage investors to lighten up on the long side, which suggests a short-term correction may be in the making. Longer-term traders are not too worried since they expect OPEC+ production cuts and Saudi Arabia’s voluntary output reductions to provide amble support.

Last week, March WTI crude oil settled at $52.42, up $0.16 or +0.31% and March Brent crude oil finished at $55.10, down $0.89 or -1.62%.

To Recap the Week:

US Government Reports Another Bullish Draw

The market is also being underpinned by another reported drawdown in U.S. crude oil stockpiles, though gasoline and distillate inventories rose as refiners ramped up output to the highest level since August, the Energy information Administration said on Wednesday.

Crude inventories fell by 3.2 million barrels in the week to January 8 to 482.2 million barrels, compared with expectations in a Reuters poll for a 2.3 million-barrel drop. U.S. gasoline stocks rose by 4.4 million barrels in the week to 245.5 million barrels, compared with expectations for a 2.7 million-barrel rise. Distillate stockpiles rose by 4.8 million barrels in the week, versus expectations for a 2.7 million-barrel rise.

Refinery crude runs rose by 274,000 barrels per day in the last week, the EIA said. Refinery utilization rates rose by 1.3 percentage points, in the week, boosting overall refining use to 82% of capacity, highest since August.

China Crude Imports Jump in 2020

Crude imports into China were up 7.3% in 2020, with record arrivals in two out of four quarters as refineries increased runs and low prices prompted stockpiling, customs data showed on Thursday.

IEA Says Oil Market Outlook Clouded by Vaccine Roll-Out Variables

Oil producers face an unprecedented challenge to balance supply and demand as factors including the pace and response to COVID-19 vaccines cloud the outlook, and official with the International Energy Agency (IEA) said on Wednesday.

Biden Pledges New COVID Relief

U.S. President-elect Joe Biden on Thursday revealed details of a $1.9 trillion coronavirus rescue package. Biden’s proposal, called the American Rescue Plan, includes some familiar stimulus measures in the hope of sustaining families and companies till vaccines are widely distributed. Some of the proposed measures include stimulus checks as well as unemployment support.

US Recovery Weakening

On Thursday, the Labor Department’s weekly jobless report showed the number of Americans filing first-time claims for unemployment benefits increased more than expected last week, underscoring the impact of a resurgence in COVID-19 infections.

U.S. retail sales fell for a third straight month in December amid job losses and renewed measures to slow the spread of COVID-19, the Commerce Department reported on Friday, further evidence the economy lost speed at the end of 2020.

Weekly Forecast

At the end of last week, crude oil prices were being controlled by the U.S. Dollar and worries over rising coronavirus cases in China. We expect to see much of the same this week as a drop in risk sentiment due to a weakening U.S. economy is expected to continue to drive investors into the safe-haven greenback. Since crude oil is a dollar-denominated asset, foreign demand is expected to come in lighter, pressuring prices.

We should learn a lot about the spread of COVID-19 cases in China over the near-term by its decision as to whether citizens will be allowed to travel to various cities to celebrate the Lunar New Year in February.

For a look at all of today’s economic events, check out our economic calendar.

Bitcoin and Chainlink – Weekly Technical Analysis – January 18th, 2021

Bitcoin

Bitcoin, BTC to USD, fell by 6.02% in the week ending 17th January. Partially reversing a 15.8% rally from the previous week, Bitcoin ended the week at $35,900.0.

A bearish start to the week saw Bitcoin tumble to a Monday intraweek low $30,635.0 before finding support.

Bitcoin fell through the 23.6% FIB of $33,008 to come within range of the first major support level at $30,504.

After another bearish day on Tuesday, Bitcoin rallied to a Wednesday intraweek high $40,001.0 before hitting reverse.

While falling well short of the first major resistance level at $43,933, Bitcoin broke back through the 23.6% FIB of $33,008.

A bearish end to the week, however, saw Bitcoin revisit sub-$34,000 levels before wrapping up the week at $35,900 levels.

5 days in the red that included an 7.31% tumble on Monday and a 6.12% slide on Friday delivered the downside.

For the week ahead

Bitcoin would need to avoid a fall through $35,512 pivot to support a run the first major resistance level at $40,389.

Support from the broader market would be needed for Bitcoin to break back through to $40,000 levels.

Barring an extended crypto rally, resistance at last week’s high $40,001 would likely cap any upside.

In the event of an extended breakout, Bitcoin could test resistance at $45,000 before any pullback. The second major resistance level sits at $44,878.

Failure to avoid a fall through the $35,512 pivot would bring the 23.6% FIB of $33,008 and the first major support level at $31,023 into play.

Barring an extended sell-off, however, Bitcoin should steer clear of sub-$30,000 support levels and the 38.2% FIB of $27,465. The second major support level sits at $26,146.

At the time of writing, Bitcoin was up by 0.28% to $35,999.0. A mixed start to the week saw Bitcoin fall to an early Monday morning low $35,630.0 before rising to a high $36,244.0.

Bitcoin left the major support and resistance levels untested at the start of the week.

BTCUSD 180121 Daily Chart

Chainlink

Chainlink surged by 43.53% in the week ending 17th January. Following on from an 18.11% gain from the week prior, Chainlink ended the week at $23.30.

It was a particularly bearish start to the week. Chainlink slid to a Monday intraweek low $12.50 before ending the day at $16 levels.

The sell-off saw Chainlink briefly fall through the 38.2% FIB of $12.9 and the first major support level at $12.87.

After a bearish Tuesday, Chainlink surged to a Sunday intraweek high and a new swing hi $23.7392.

The breakout saw Chainlink break through the week’s major resistance levels to end the week at $23 levels.

4-days in the green included a 13.86% rally on Wednesday, a 12.48% gain on Thursday, a 15.7% jump on Friday, and a 15.82% breakout on Sunday.

For the week ahead

Chainlink would need to avoid a fall through the pivot level at $19.85 to support a run at the first major resistance level at $27.19.

Support from the broader market would be needed, however, for Chainlink to break out from last week’s all-time high $23.7392.

Barring another extended crypto rally, the first major resistance level would likely cap any upside.

In the event of another breakout, Chainlink could test resistance at $30 before any pullback. The second major resistance level sits at $31.09.

Failure to avoid a fall through the pivot level at $19.85 would bring 23.6% FIB of $18.5 into play before any recovery.

Barring a crypto meltdown, however, Chainlink should steer well clear of last week’s low $12.50. The first major support level at $15.95 and the 38.2% FIB of $15.2 should limit any downside.

At the time of writing, Chainlink was flat at $23.30. A mixed start to the week saw Chainlink fall to an early Monday morning low $22.9074 before rising to a high $23.6632.

Chainlink left the major support and resistance levels untested at the start of the week.

LINKUSD 180121 Daily Chart

Precious Metals May Decline Before Their Next Attempt to Rally

My team prepares Custom Valuations Index charts to understand how capital is being deployed in the global markets alongside US Dollar and Treasury Yields.  The purpose of the Custom Index charts in this article is to provide better insight into and understanding of underlying capital movements in various market conditions.  Recently, we discovered the Custom Index chart shares a keen alignment with Gold (and likely the general precious metals sector).  Let’s explore our recent analysis to help readers understand what to expect next in precious metals.

Weekly custom valuations index chart

The first thing that caught my attention was the very clear decline in the weekly Custom Valuations Index recently, as can be seen in the chart below.  The second peak on the Custom Valuations Index chart occurred on the week of August 3, 2020.  Gold also peaked at this very same time.  This alignment started an exploratory analysis of the Custom Valuations Index and the potential alignment with the precious metals sector.

The peak in the Custom Valuations Index on March 20, 2020 (near the height of the COVID-19 market collapse) presented a very clear upside target which was confirmed with a second peak level in August 2020.  The fact that the Custom Valuations Index reached that peak level again and that peak level also aligned with the peak price in Gold may just be a coincidence.  As we continue to explore this unique alignment, we’ll explore more unique characteristics to see if there is a link that is more than mere chance.

There have been two very clear Pennant/Flag formations as you can see on the above weekly Custom Valuations Index chart.  The first one is highlighted in BLUE and the second one is highlighted in GREEN.  In both of these instances, the Custom Valuations Index broke lower and Gold followed this trend.  Currently, the Custom Valuations Index has begun to breakdown into a new bearish trend. This suggests that Gold and Silver may also move lower as this Custom Index attempts to find a bottom.

Now, let’s do a more in-depth analysis of Gold and the Custom Valuations Index.  In the following charts, we’ve attempted to highlight key price traits that took place in Gold over the past 9+ years and wanted to see if these key price points were reflected in the Custom Valuations Index chart.  The purpose of this is to identify if our assumption that the Custom Valuations Index chart is aligned to Gold (in some way) shows any additional (past price) alignment to validate our thinking.

Weekly Gold chart

First, we’ll start with a Weekly Gold chart that highlights key price points, peaks, bottoms, and breakout/breakdown events.  We want to see if the Custom Valuations Index chart also aligned with these key price moves/dates.

The following Gold Futures Weekly chart highlights the Appreciation/Depreciation cycles we’ve identified in earlier research as well.  The GREEN ARCs near the bottom of the chart show you where each cycle starts and stops.  The RED descending line represents a Depreciation Cycle and the GREEN Ascending line represents an Appreciation Cycle.  We are focusing on the September 2011 peak price in Gold and the key price events after the “Failure Peak” that took place to set up the bottom in early 2015, the rally in early 2016, and the breakout rally in June 2019.  Does the Custom Valuations Index chart show these same characteristics and dates?

Weekly Customs Valuation Chart and Gold Price History

This next chart is the Weekly Custom Valuations Index chart with the same highlighted price points/dates.  The first thing we see from this chart is that the “Failure Peak” (October 2012) was a higher price peak on this Custom Index chart than the setup on the Gold chart at the same time.  Thus, the Custom Valuations Chart represented the extended “excess phase” top in Gold as a continued upward trend.  The downtrend after the October 2012 peak on this Custom Valuations Index chart does align with the big breakdown on the Gold chart (above).

Additionally, the early 2015 bottoming on the Custom Index chart represented a very early sign that Gold may be looking for a bottom as well.  Gold did move lower throughout the next 11+ months, but so did the Custom Valuations Index price. It makes sense that the Custom Valuations Index may be representing underlying key market dynamics that could be applied to the Gold chart in some way.

The Initial Gold Rally in February 2016 was the first real clear trigger on both these charts that coincided with a breakout/rally trend in Gold.  This rally attempt eventually stalled near the end of 2016 and began an extended “momentum base” setup.  Notice how the Custom Valuations Index chart represented this momentum base as and extended sideways Pennant/Flag formation that ended near June 2019.  Also, notice how the stalling in the Custom Valuations Index chart initiated many weeks before Gold actually peaked in 2016.

From the February 2019 Breakout, we can clearly see the impressive rally in the Custom Index chart aligned with a big rally in Gold.  What is interesting is the DUAL PEAK in the Custom Index chart that first setup from the lows of the March 2020 COVID-19 bottom.  Could it be that extreme price move somehow represented a key future target for Gold and for the Custom Index chart?

There is very little corresponding data to compare to – so we’ll have to continue to try to dig deeper for any confirmation of this unique setup. Yet, we can’t underestimate the DUAL PEAK setup on the Custom Index chart and the fact that the second peak, August 2020, also aligned perfectly with the current peak price in Gold. Since that August 2020 peak, both Gold and the Custom Index chart have continued to breakdown and trend lower.  It makes sense that Gold will continue to move lower, in alignment with the Custom Index chart, attempting to find a new bottom/momentum base.  We believe the 200 to 240 level on the Custom Valuations Index chart may be a suitable range for this new bottom.

One thing we can say with a moderate degree of certainty is that the Custom Valuations Index chart appears to lead the precious metals in many instances and it appears to perfectly align in other instances.  Our research suggests the US and global markets have recently entered a Depreciation Cycle phase which may last many years.  The Custom Valuations Index chart is suggesting that the US, global and precious metals sectors are weakening and attempting to find/set up a new momentum/base.

This would suggest that capital will move away from precious metals as well as major market sectors and attempt to find opportunities in undervalued or other hot sectors.  Eventually, once the new momentum base/bottom is firmly established in Gold and the Custom Valuations Index chart, the US and Global major market sectors will likely resume a very strong upside price trend.

The key take-away from this research is that sector rotations related to precious metals, major global markets and potential early warning signs of strength or weakness may be attainable by focusing on how the Custom Valuations Index trends in comparison to Gold and the major indexes.  Currently, the Custom Valuations Index is suggesting that precious metals will move lower and try to find a new bottom/base.  This means other market sectors will perform better than precious metals for a period of time.

This is also an important reason to focus your attention on finding the best and hottest sectors for new trade opportunities.  When broad components of the market enter bearish trends, like the Custom Valuations Index is suggesting for precious metals, it is best to have a proven system for identifying the best sector trends and trade opportunities.  While one sector may stall, others are rallying.  Long term success is found by focus your trading capital on the strongest opportunities while avoiding weaker trends.

2021 is going to be full of these types of trends and setups.  Quite literally, hundreds of these setups and trades will be generated over the next 3 to 6 months using my BAN strategy.  You can learn how to find and trade the hottest sectors right now in my free one-hour BAN tutorial.

For a look at all of today’s economic events, check out our economic calendar.

Enjoy your weekend!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Earnings to Watch Next Week: Logitech, Goldman Sachs, NetFlix and IBM in Focus

Next week’s earnings are of much significance for major market movements as 2021 is believed to be a year of recovery on hopes of successful roll-out of the COVID-19 vaccine.

Earnings Calendar For The Week Of January 18

Monday (January 18)

IN THE SPOTLIGHT: LOGITECH INTERNATIONAL

Logitech International S.A., a Swiss-American manufacturer of computer peripherals and software, is expected to report a profit of $1.08 in the fiscal third quarter, which represents year-over-year growth of about 29% from the same quarter last year when the company reported 84 cents per share.

The Lausanne-based company’s revenue to grow over 35% year-over-year to $1.23 billion from $902.69 million in the same period last year.

“We are bullish into Logitech‘s F3Q21 earnings report next week as our December quarter checks point to a better than the expected market environment, most notably for PC peripherals. We’d be buyers into the print and raise our PT to $113 (from $106) to account for recent peer multiple expansion,” noted Erik Woodring, equity analyst at Morgan Stanley.

Tuesday (January 19)

IN THE SPOTLIGHT: GOLDMAN SACHS, NETFLIX

GOLDMAN SACHS: New York-based leading global investment bank is expected to report a profit of $7.33 in the fourth quarter, which represents year-over-year growth of about 56% from the same quarter last year when the company reported $4.69 per share. The bank’s revenue is expected to dip 4.9% from the year-ago quarter to $9.47 billion.

“As market volatility and the urgency around capital raising activity (both equity and debt) subside in 2021, we expect total revenues decline 11% y/y from a strong 2020. We are valuing the group on normalized 2023 EPS. While we still see 15%+ upside to Goldman Sachs (GS) based on this methodology, we see even more upside elsewhere in the group, particularly in consumer finance stocks which have been under more pressure,” said Betsy Graseck, equity analyst at Morgan Stanley.

“This drives our Underweight rating. Over time, we expect GS can drive some multiple expansion as management executes on its multi-year strategic shift towards higher recurring revenues.”

NETFLIX: California-based global internet entertainment service company is expected to report a profit of $1.35 in the fourth quarter, which represents year-over-year growth of about 4% from the same quarter last year when the company reported $1.30 per share. The streaming video pioneer’s revenue is expected to surge over 20% from the year-ago quarter to $6.60 billion.

“We expect paid net adds to come in the above guide, helped by ongoing shutdowns & seasonal strength. Our view is supported by our positive proprietary 4Q20 survey data, which implies rising pricing power into year-end. We tweaked estimate’s & introduced ’21 quarters; in turn, our DCF-based price target rises to $650 from $625 prior; reiterate ‘Outperform’ rating,” said John Blackledge, equity analyst at Cowen and company.

NetFlix (NFLX) shares were +67% in ’20 alongside a pandemic surge, following massive sub beats in 1Q / 2Q respectively and 28.1MM total paid net adds in 1Q-3Q ’20, up 47% y/y. With consumers staying home amid colder weather & limited social activities, we expect Netflix engagement to remain high; meanwhile, to the extent, there is any NT pressure on UCAN paid subs from the 4Q US price increase, we would consider this a buying opportunity for NFLX shares as the co. grows the value prop alongside rising ARPU.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 19

Ticker Company EPS Forecast
PACW Pacwest Bancorp $0.67
CMA Comerica $1.18
ONB Old National Bancorp $0.38
SCHW Charles Schwab $0.65
GS Goldman Sachs $7.33
STT State Street $1.57
HAL Halliburton $0.15
FULT Fulton Financial $0.27
JBHT J B Hunt Transport Services $1.30
ZION Zions Bancorporation $1.01
PNFP Pinnacle Financial Partners $1.36
FNB FNB $0.24
UCBI United Community Banks $0.60
NFLX Netflix $1.35
IBKR Interactive Brokers $0.58
RNST Renasant $0.59
SBNY Signature Bank $2.91

Wednesday (January 20)

IN THE SPOTLIGHT: UNITEDHEALTH

UNITEDHEALTH: Minnesota-based health insurance and health care data analysis giant is expected to report a profit of $2.41 in the fourth quarter, which represents a year-over-year decline of about 40% from the same quarter last year when the company reported $3.90 per share.

The largest insurance company by Net Premiums is witnessing a slowdown in its international business as increased joblessness due to the COVID-19 pandemic has dented demand for commercial membership.

UnitedHealth Group is the number one Medicare Advantage player with 28% market share, the number two Medicare PDP player with 20% market share, and the number two commercial player with 15% market share. United’s model is enhanced via vertical integration with its OptumRx PBM platform, which is one of the three largest PBMs in the country,” wrote Ricky Goldwasser, equity analyst at Morgan Stanley.

“With a large lead in the breadth of services offerings and considerable exposure to government businesses, UnitedHealth is well-positioned for any potential changes in the US healthcare system. A strong balance sheet and continued solid cash generation give flexibility for continued M&A.”

United Airlines is expected to report a deep loss in the fourth quarter due to the COIVD-19 pandemic, which harmed demand for travel.

Ohio-based Tide detergent and Pampers diaper manufacturer Procter & Gamble is expected to report an increase in profits on rising demand for home care and laundry products amid the COIVD-19 pandemic.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 20

Ticker Company EPS Forecast
UNH UnitedHealth $2.41
PG Procter & Gamble $1.51
ASML Asml $2.96
MS Morgan Stanley $1.30
USB US Bancorp $0.95
BK Bank Of New York Mellon $0.88
FAST Fastenal $0.33
CFG Citizens Financial $0.91
CBSH Commerce Bancshares $0.92
BOKF BOK Financial $1.92
FCEL Fuelcell Energy -$0.07
KMI Kinder Morgan $0.24
DFS Discover Financial Services $2.36
UAL United Airlines Holdings -$6.56
AA Alcoa $0.09
WTFC Wintrust Financial $1.41
UMPQ Umpqua $0.48
HWC Hancock Whitney Corp $0.90
PLXS Plexus $1.10
STL Sterling Bancorp $0.46
PTC PTC $0.65

Thursday (January 21)

IN THE SPOTLIGHT: IBM

IBM: Armonk, New York-based technology and consulting company is expected to report a profit of $1.81 in the fourth quarter, which represents a year-over-year decline of over 60% from the same quarter last year when the company reported $4.71 per share.

“For 2020, IBM refrained from providing any guidance, citing business uncertainty. Nevertheless, management stated that the fourth quarter is a seasonally strong quarter. The company is witnessing robust pipelines across hybrid cloud and data platform, AI solutions, in Cognitive Apps business driven by strength in Cloud Paks and Security, cloud-based transformation services in GBS segment, and App modernization offerings,” noted analysts at ZACKS Research.

“Also, management is banking on advancement in Red Hat “actual backlog growth.” Moreover, gains from the rapid uptake of IBM z15 is anticipated to be a tailwind. The company also anticipates to end 2020 with reduced debt levels.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 21

Ticker Company EPS Forecast
UNP Union Pacific $2.24
TFC Truist Financial Corp $0.85
TAL TAL International $0.04
TRV Travelers Companies $3.16
BKR Baker Hughes Co $0.17
FITB Fifth Third Bancorp $0.68
NTRS Northern $1.49
MTB M&T Bank $3.02
KEY KEY $0.43
CTXS Citrix Systems $1.34
HOMB Home Bancshares $0.39
INDB Independent Bank $1.02
FBC Flagstar Bancorp $2.36
WBS Webster Financial $0.75
BKU BankUnited $0.71
WNS Wns Holdings $0.59
INTC Intel $1.10
IBM IBM $1.81
ISRG Intuitive Surgical $3.09
CSX CSX $1.01
PPG PPG Industries $1.58
SIVB SVB Financial $3.79
TCBI Texas Capital Bancshares $1.13
ASB Associated Banc $0.30
PBCT People’s United Financial $0.32
OZK Bank Ozk $0.78
WAL Western Alliance Bancorporation $1.33
BKRKY Bank Rakyat $0.17
MTCH Match Group $0.50
MTG MGIC Investment $0.37
STX Seagate Technology $1.13

Friday (January 22)

Ticker Company EPS Forecast
EDU New Oriental Education Tech $0.26
ABBV AbbVie $2.86
HON Honeywell International $2.00
SLB Schlumberger $0.17
KSU Kansas City Southern $1.93
RF Regions Financial $0.42
HBAN Huntington Bancshares $0.29
ALLY Ally Financial $1.05
FHN First Horizon National $0.28
HRC Hill-Rom $1.05
NEP Nextera Energy Partners $0.39
IBN Icici $0.14
TOP Topdanmark A/S kr3.63

 

The Week Ahead – U.S Politics, Monetary Policy, Economic Data, and COVID-19 in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 73 stats in focus in the week ending 22nd January. In the week prior, 46 stats had been in focus.

For the Dollar:

It’s a quiet week ahead on the economic data front.

In a shortened week, there are no material stats to consider in the 1st half of the week.

Through Thursday, Philly FED Manufacturing PMI and weekly jobless claims figures are in focus.

With market attention to labor market conditions, expect the jobless claims to have the biggest impact. Another jump in jobless claims would likely weigh on riskier assets.

At the end of the week, prelim private sector PMI figures for January wrap things up.

Housing sector data also due out in the week will likely have a muted impact on the Dollar and risk sentiment.

The Dollar Spot Index ended the week up by 0.75% to 90.772.

For the EUR:

It’s a busy week ahead on the economic data front.

On Tuesday, January ZEW Economic Sentiment figures for Germany and the Eurozone kick things off.

Germany’s ZEW Economic Sentiment indicator will likely be the key driver.

The focus will then shift to January prelim private sector PMI numbers on Friday. France, Germany, and the Eurozone’s private sectors will be in the spotlight on.

Expect Germany’s manufacturing and the Eurozone’s composite to be the key drivers.

Finalized December inflation figures for member states and the Eurozone, also due out in the week, will likely have a muted impact on the EUR.

On the monetary policy front, the ECB is in action on Thursday. No moves are expected, leaving the press conference as the key driver. Questions on the economic outlook are likely as EU member states extend lockdown periods.

The EUR ended the week down by 1.11% to $1.2082.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. Key stats include December inflation and retail sales figures, CBI industrial trend orders, and prelim January private sector PMIs.

Expect the retail sales figures and services PMI, due out on Friday, to have the greatest influence.

Away from the economic calendar, COVID-19 news will also influence. Following the vaccine approvals, the markets will be looking for new COVID-19 cases to begin abating.

On the monetary policy front, BoE Governor is scheduled to speak on Wednesday.

The Pound ended the week up by 0.16% to $1.3590.

For the Loonie:

It’s a busy week ahead on the economic calendar.

Key stats include December inflation and November retail sales figures due out on Wednesday and Friday.

Other stats include housing stats, manufacturing and wholesale sales figures. We would expect these stats to have a muted impact on the Loonie, however.

On the monetary policy front, the BoC is in action on Wednesday. With the markets expecting the BoC to hold rates steady, the rate statement and press conference will be the key drivers.

From elsewhere, economic data from China and private sector PMIs from the Eurozone and the U.S will also influence.

Expect COVID-19 news updates and chatter from Capitol Hill to also provide direction.

The Loonie ended the week down by 0.24% to C$1.2732 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a busier week on the economic data front.

Consumer sentiment figures for January are due out on Wednesday.

With consumer confidence key to fueling a pickup in consumer spending and an economic recovery, expect Aussie Dollar sensitivity to the numbers.

On Thursday, December employment figures will also provide direction ahead of retail sales figures on Friday.

Economic data from China and private sector PMI numbers from the U.S and the Eurozone will also influence.

COVID-19 news updates will remain a key driver in the week. however.

The Aussie Dollar ended the week down by 0.70% to $0.7703.

For the Kiwi Dollar:

It’s a quiet week ahead on the economic calendar.

In the 1st half of the week, 4th quarter business confidence and electronic card retail sales figures are in focus on Tuesday.

At the end of the week, Business PMI and 4th quarter inflation figures wrap things up.

Expect business confidence, retail sales, and 4th quarter inflation figures to be the key drivers.

The Kiwi Dollar ended the week down by 1.51% to $0.7133.

For the Japanese Yen:

It is a busy week ahead.

Finalized November industrial production figures get things going on Monday.

On Thursday, December trade figures will draw plenty of attention. With the COVID-19 pandemic continuing to wreak havoc, weak numbers could test market risk appetite.

At the end of the week, December inflation figures and prelim private sector PMIs for January wrap things up. The PMI numbers should have greater influence at the end of the week.

On the monetary policy front, the BoJ is in action on Thursday.

The Japanese Yen ended the week up by 0.09% to ¥103.85 against the U.S Dollar.

Out of China

It’s also a busy week ahead.

December industrial production and 4th quarter GDP numbers are due out on Monday. These will be the key stats of the week.

Other stats include fixed asset investment, retail sales, and unemployment figures. Barring dire numbers, however, these stats should have limited impact on market risk sentiment.

On Wednesday, the PBoC is also in action. However, the markets are not expecting any moves.

The Chinese Yuan ended the week down by 0.10% to CNY6.4809 against the U.S Dollar.

Geo-Politics

U.S Politics

It’s a busy week on Capitol Hill.

Inauguration Day and Trump’s impeachment will draw interest.

COVID-19

Vaccination rates and availability of vaccines will be key areas of interest.

An upward trend in vaccination rates and a downward trend on infection rates would support optimism towards an economic recovery.

Corporate Earnings

A number of big names deliver results in the week ahead.

From the U.S

These include:

Bank of America (Tues)

Goldman Sachs Group (Tues),

Netflix (Tues)

United Airlines (Wed)

Morgan Stanley (Wed)

Intel Corp. (Thurs).

U.S Mortgage Rates Jump on Stimulus and COVID-19 Vaccination News

Mortgage rates were on the rise for a 2nd consecutive week, with 30-year fixed rates jumping by 14 basis points to 2.79%.

Compared to this time last year, 30-year fixed rates were down by 86 basis points.

30-year fixed rates were also down by 215 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

Through the 1st half of the week, economic data from the U.S was on the lighter side. Key stats included JOLTs job openings and inflation figures.

While JOLTs job openings eased in November, the annual core rate of inflation held steady at 1.6%. The stats had a muted impact in the week, however.

From Capitol Hill, the planned rollout of a sizeable stimulus package and ongoing vaccinations supported riskier assets.

Freddie Mac Rates

The weekly average rates for new mortgages as of 14th January were quoted by Freddie Mac to be:

  • 30-year fixed rates jumped by 14 basis points to 2.79% in the week. This time last year, rates stood at 3.65%. The average fee remained steady at 0.7 points.
  • 15-year fixed rates rose by 7 basis point to 2.23% in the week. Rates were down by 86 basis points from 3.09% a year ago. The average fee rose from 0.6 points to 0.7 points.
  • 5-year fixed rates surged by 37 basis points to 3.12%. Rates were down by 27 points from 3.39% a year ago. The average fee rose from 0.3 points to 0.4 points.

According to Freddie Mac,

  • A rise in U.S Treasury yields at the start of the year pressured mortgage rates upwards in the week.
  • While rates are expected to increase modestly in 2021, they will remain inarguably low, supporting homebuyer demand and mortgage refinancing.
  • Borrowers are smart to take advantage of these low rates now and will benefit as a result.

Mortgage Bankers’ Association Rates

For the week ending 8th January, the rates were:

  • Average interest rates for 30-year fixed to conforming loan balances increased from 2.86% to 2.88%. Points decreased from 0.35 to 0.33 (incl. origination fee) for 80% LTV loans.
  • Average 30-year fixed mortgage rates backed by FHA increased from 2.90% to 2.93%. Points fell from 0.33 to 0.32 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, surged by 16.7% in the week ending 8th January. Over the 2-weeks prior, the Index had fallen by 4.2%..

The Refinance Index jumped by 20% and was 93% higher then the same week a year ago. Over the 2-weeks to 1st January, the index had fallen by 6%.

In the week ending 8th January, the refinance share of mortgage activity increased from 73.5% of total applications to 74.8%.

According to the MBA,

  • Booming refinance activity in the first full week of 2021 caused mortgage applications to surge to their highest level since March-2020.
  • The expectation of additional fiscal stimulus and the rollout of vaccines improved the economic outlook. This lead to a jump in Treasury yields that drove mortgage rates northwards.
  • Even with rising mortgage rates, refinancing did not slow at the start of the year.
  • Sustained housing demand continued to support purchase growth, with activity up nearly 10% from a year ago.

For the week ahead

It’s a particularly quiet first half of the week on the U.S economic calendar. There are no material stats due out of the U.S to provide U.S Treasuries and mortgage rates with direction.

A lack of stats will leave yields in the hands of COVID-19 news, chatter from Capitol Hill, and economic data from the week prior.

Disappointing jobless claims and retail sales figures from last week will set the tone going into the week.

On Monday, 4th quarter GDP numbers from China will also influence.

Ultimately, however, with details of the U.S stimulus package now out, COVID-19 news will remain a key driver.

The Weekly Wrap – COVID-19, Economic Data, and U.S Stimulus Weigh on Riskier Assets

The Stats

It was a relatively busy week on the economic calendar, in the week ending 15th January.

A total of 46 stats were monitored, following 61 stats from the week prior.

Of the 46 stats, 21 came in ahead forecasts, with 17 economic indicators coming up short of forecasts. There were 8 stats that were in line with forecasts in the week.

Looking at the numbers, 17 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 23 reflected a deterioration from previous.

For the Greenback, it was a 2nd consecutive weekly gain, with the Dollar Spot Index rising by 0.75% to $90.772. In the previous week, the Dollar had risen 0.18% to 90.098.

Out of the U.S

It was a relatively busy week on the economic data front.

It was a quiet 1st half of the week, however, with stats limited to JOLTs job openings and inflation figures.

While job openings fell in November, inflation held steady, with the annual rate of core inflation holding at 1.6%.

Consumer prices rose by 0.4%, month-on-month, while core consumer prices increased by a modest 0.1%.

In a busy 2nd half of the week, key stats included the weekly jobless claims, retail sales, and consumer sentiment figures.

Jobless claims figure disappointed on Thursday, with initial jobless claims jumping from 784k to 965k.

In December, core retail sales slid by 1.4%, with retail sales falling by 0.7%, both following on from declines in November.

Consumer sentiment figures also disappointed.

According to prelim figures, the Michigan Consumer Sentiment Index fell from 80.7 to 79.2.

The downside was limited, however, supported by COVID-19 vaccines and hopes of a bipartisan shift.

The survey noted that the fall was minor when considering the sharp rise in COVID-19 related deaths, insurrection, and Trump’s impeachment.

Other stats included industrial production, NY Empire State Manufacturing, and business inventory figures. These stats had limited impact on the markets, however.

On the monetary policy front, FED Chair Powell assured the markets that rates were not going up any time soon. The FED Chair also stated that there would be no tapering of bond purchases near-term.

In the equity markets, the NASDAQ and the S&P500 slid by 1.54% and by 1.48% respectively. The Dow fell by a more modest 0.91%.

Out of the UK

It was a relatively busy week on the economic data front.

Monday through Thursday economic data was limited to BRC retail sales and RICS house price figures.

Retail sales rose by a further 4.8% in December, following a 7.7% rise in November according to the BRC.

House prices were also on an upward trend, with the RICS house price balance coming in at 65%. While down marginally from October’s 66%, upward pressure on house prices is expected to remain.

At the end of the week, industrial and manufacturing production and GDP figures were in focus.

In November, industrial production fell by 0.1%, following a 1.1% rise in October. Manufacturing production rose by 0.7%, following a 1.6% increase in October. Both fell short of forecasts.

GDP figures were not much better. In November, the economy contracted by 2.6% reversing 0.4% growth from October. On a 3-month rolling basis, the economy grew by 4.1%, slowing from a 10.2% to October.

Trade data released on Friday had a muted impact on the Pound, however. In November, the trade deficit widened from £13.29bn to £16.01bn, with the non-EU deficit widening from £5.82bn to £8.01bn.

Away from the economic calendar, a pickup in vaccination rates in the UK offset the negative sentiment towards lockdown measures.

In the week, the Pound rose by 0.16% to $1.3590. In the week prior, the Pound had fallen by 0.76% to $1.3568. A 0.72% slide on Friday pared some of the gains from earlier in the week.

The FTSE100 ended the week down by 2.00%, partially reversing a 6.39% gain from the previous week.

Out of the Eurozone

It was a relatively quiet week on the economic data front.

Industrial production and trade figures for the Eurozone, together with full year GDP numbers for Germany were in focus.

It was a mixed set of numbers for the EUR and the European majors.

For the Eurozone, industrial production jumped by 2.5% in November, following a 2.3% increase in October.

Trade data disappointed, however, with the trade surplus narrowing from €30.0bn to €25.8bn in November. Weak numbers were expected, however, following Germany’s trade data from last week.

While economic data from Germany has been impressive of late, GDP figures disappointed.

For the full year 2020, the economy contracted by 5.0%, following 0.6% growth in 2019. Economists had forecasted a 5.1% fall, however, which limited the damage.

ECB President Lagarde had spoken the day before the release of the GDP numbers. Lagarde continued to stand by the ECB’s economic forecasts, in spite of the extended lockdown measures in the EU. Lagarde pointed out that the forecasts had factored in lockdowns through the 1st quarter.

At the end of the week, finalized inflation figures for France and Spain had a muted impact on the EUR.

On the monetary policy front, the ECB’s monetary policy meeting minutes also failed to move the dial in the week.

For the week, the EUR slid by 1.11% to $1.2082. In the week prior, the EUR had risen by 0.02% to $1.2218.

For the European major indexes, it was a bearish week. The EuroStoxx600 fell by 0.81%, with the CAC40 and DAX30 sliding by 1.67% and 1.86% respectively.

A continued spike in new COVID-19 cases weighed. Across the EU, member states were reporting particularly low vaccination rates that added to the negative mood.

For the Loonie

It was a particularly quiet week on the economic data front. There were no material stats to provide the Loonie with direction.

At the start of the week, the BoC’s Business Outlook Survey failed to move the dial.

Market optimism, fueled by expectations of a sizeable U.S stimulus package, had supported crude oil prices and the Loonie.

A Friday sell-off, however, left the Loonie in the red. Concerns over the COVID-19 pandemic and market reaction to the Biden stimulus package weighed on riskier assets.

In the week ending 15th January, the Loonie fell by 0.24% to C$1.2732. In the week prior, the Loonie had risen by 0.2% to C$1.2702.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar, following solid gains from the previous week.

In the week ending 15th January the Aussie Dollar fell by 0.70% to $0.7703, with the Kiwi Dollar ended the week down by 1.51% to $0.7133.

For the Aussie Dollar

It was a quiet week on the economic calendar.

November retail sales, building permit, and new home loan figures were in focus in the week.

Retail sales impressed in November, supported by an easing of containment measures in Victoria. Sales jumped by 7.1%, following a 1.4% rise in October.

Building permits rose by 2.6%, following a 3.3% increase in October, with new home loans surging by 5.5%.

Home loans hit a record high mid-way through the 4th quarter.

From elsewhere, trade data from China also provided support, with imports and exports on the rise in December.

For the Kiwi Dollar

It was also a particularly quiet week on the economic calendar.

There were no material stats from New Zealand to provide the Kiwi Dollar with direction.

For the Japanese Yen

It was a relatively quiet week on the economic calendar. Core machinery orders were in focus in the week.

Month-on-month, orders rose by 1.5% in November, following October’s 17.1% surge. Economists had forecast a 6.2% slide. Year-on-year, orders were down by 11.3%, after having risen by 2.8% in October. Economists had forecast a more severe 15.4% slump.

The stats ultimately had a muted impact on the Japanese Yen, however. COVID-19 news and chatter from Capitol Hill remained key drivers in the week.

The Japanese Yen rose by 0.09% to ¥103.85 against the U.S Dollar. In the week prior, the Yen had fallen by 0.72% to ¥103.94.

Out of China

Inflation and trade data for December were in focus.

The stats were skewed to the positive, supporting riskier assets in the week.

Inflationary pressures returned at the end of the year, with consumer prices rising by 0.7%, month-on-month. In November, consumer prices had fallen by 0.6%. As a result, consumer prices were up by 0.2% year-on-year, partially reversing a 0.5% decline from November.

Wholesale deflationary pressures also eased at the end of the year.

Trade data was more impressive, however, with exports surging by 19.1% following a 21.1% jump in November. Imports increased by 6.5%, leading to a widening in the USD trade surplus from $75.4bn to $78.16bn.

While the stats were positive, a spike in new COVID-19 cases in China was a concern in the week.

In the week ending 15th January, the Chinese Yuan fell by 0.10% to CNY6.4809. In the week prior, the Yuan had risen by 0.81% to CNY6.4746.

The CSI300 slipped by 0.68%, while the Hang Seng ended the week up by 2.50%.

European Equities: A Week in Review – 15/01/21

The Majors

It was a bearish week for the European majors, which partially reversed gains from the first week of the year.

The DAX30 and CAC40 slid by 1.86% and by 1.67% respectively, with EuroStoxx600 falling by 0.81%.

For the EuroStoxx600, a run of 4 consecutive weekly gains came to an end.

Concerns over the effect of extended lockdown measures in Eurozone tempered market optimism towards the economic recovery.

Low vaccination rates and a continued surge in new COVID-19 cases suggested that any economic recovery would be on hold near-term.

While economic data from China had provided support to the European majors, data from the U.S added to the bearish sentiment.

The Stats

It was a relatively quiet week on the economic calendar.

Industrial and trade data for the Eurozone were in focus along with full year GDP numbers for Germany.

The German economy contracted by 5.0% in 2020, following 0.6% growth in 2019. Not only did the contraction bring to an end a run of 10 consecutive years of growth but also ended a run of 14 continuous years of upward trend in employment. In 2020, employment fell by 1.1%.

From the Eurozone, industrial production rose by 2.5% in November, following a 2.3% increase in October.

The Eurozone’s trade surplus narrowed from €30.0bn to €25.8bn in November, however, reflecting the impact of the COVID-19 pandemic on trade terms late in the year.

Finalized December inflation figures for France and Spain released at the end of the week had a muted impact on the majors, however.

On the monetary policy front, the ECB monetary policy meeting minutes provided few surprises.

ECB President Lagarde was optimistic towards the economic outlook mid-week, however. The ECB President stood by the ECB’s current growth forecast for 2021, noting that forecasts had been made with a 1st quarter lockdown factored in.

From the U.S

Economic data was also on the busier side.

Key stats included JOLTs job openings, inflation, jobless claims, retail sales, and consumer sentiment figures.

While the annual rate of core inflation held steady at 1.6% in December, jobless claims figures disappointed at the start of the year.

In the week ending 8th January, initial jobless claims had jumped from a previous week 784k to 965k.

In December, core retail sales slid by 1.4%, with retail sales falling by 0.7%. Both were worse than forecasted. In November, core retail sales had fallen by 1.3%, with retail sales down by 1.4%.

January prelim consumer sentiment also disappointed, with a decline from 80.7 to 79.2.

Other stats from the U.S included industrial production, NY Empire State Manufacturing, and business inventory numbers. These stats had a muted impact on the European majors on Friday, however.

A pickup in industrial production in December failed to impress.

On the monetary policy front, FED Chair Powell assured the markets that there are no plans to hike rates anytime soon. Also positive for the majors was Powell’s view that the FED would not begin tapering its bond purchases.

From elsewhere, economic data from China also supported.

While inflationary pressures picked up at the end of the year, it was December trade figures that impressed in the week.

China recorded a 19.1% jump in exports following a 21.1% surge in November. Imports rose by a more modest but still sizeable 6.5%, suggesting a positive outlook for demand.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen rallied by 3.02% to buck the trend. Daimler slid by 2.83%, with BMW and Continental falling by a further 1.85% and by 1.47% respectively.

It was a bullish week for the banking sector, however. Deutsche Bank rose by 1.05%, with Commerzbank rallying 3.66%.

From the CAC, it was a bearish week for the banks. Credit Agricole slid by 4.59%, with BNP Paribas and Soc Gen falling by 1.86% and by 2.53% respectively.

It was also a bearish week for the French auto sector. Peugeot fell by 1.04%, with Renault tumbling by 7.01%.

Air France-KLM reversed last week’s 5.02% slide, rising by 4.46%, with Airbus ending the week up by 2.72%

On the VIX Index

It was back into the green for the VIX. In the week ending 15th January, the VIX rising by 12.89%. Reversing a 5.23% fall from the previous week, the VIX ended the week at 24.34.

For the week, NASDAQ and S&P500 slid by 1.54% and by 1.48% respectively, with the Dow falling by 0.91%.

Disappointing economic data and market reaction to the Biden stimulus package left the majors in the red for the week.

A continued rise in new COVID-19 cases and low vaccination rates in the U.S added to the market angst in the week.

VIX 160121 Weekly Chart

The Week Ahead

It’s a particularly busy week ahead on the economic calendar. Key stats include December ZEW Economic Sentiment figures for Germany and the Eurozone and member state January prelim private sector PMIs.

PMIs for France, Germany, and the Eurozone are due out on Friday. Expect Germany’s manufacturing and the Eurozone’s composite to draw greatest interest.

With lockdown measures in place across France and Germany at the end of the year, the markets will be looking to assess the damage. Service sector activity will likely take the brunt of it at the turn of the year.

On the monetary policy front, the ECB is in action on Thursday, though no moves are anticipated following Lagarde’s view on the economy.

From the U.S, weekly jobless claims figures on Thursday and private sector PMI figures on Friday will also influence.

Out of China, expect 4th quarter GDP figures and December industrial production, retail sales, and employment figures to set the tone on Monday.

Away from the economic calendar, COVID-19 news and chatter from Capitol Hill will continue to remain in focus. Inauguration Day is just around the corner and the markets will be looking for Biden’s near-term goals.

S&P 500 Weekly Price Forecast – Stock Markets Pull Back From Highs

The S&P 500 is a bit negative for the week, as traders had initially been enthusiastic about the idea of stimulus overall. After all, the stimulus package may not be the $1.9 trillion that Joe Biden asks or, and therefore people are starting to reprice all of that “cheap money.” Wall Street runs on cheap money, and that of course has a huge influence on stocks. We are getting a little bit overstretched at this point in time, and therefore a pullback makes quite a bit of sense. I do not expect a major trend change, rather I think that it offers a bit of a value play for those who are looking to pick up stocks “on the cheap.”

S&P 500 Video 18.01.21

If we can break below the bottom of the trend line, the market would more than likely drop down towards the 3600 level. That is an area that previously had been resistance, so now it should certainly offer quite a bit of support. The 3800 level has offered significant resistance, but if we can break above there then it is likely we could go to the 4000 handle. When you look at the previous consolidation area, it measures for a 400 point range. By breaking above 3600, that signifies that we could go as high as 4000. I do not necessarily think that we get there easily, but this is a market that has been resilient over the longer term. Stimulus is the key, and the fact that we are in the midst of earnings season will probably just add a bit of volatility to the equation.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Weekly Price Forecast – Crude Oil Shows Signs of Exhaustion

WTI Crude Oil

The West Texas Intermediate Crude Oil market initially tried to rally during the course of the week, only to fall and form a bit of a shooting star. The shooting star suggests that we are going to perhaps pull back, reaching towards the $50 level. Underneath there, then the $47.50 level could be a target as well. In general, this is a market that I think will continue to attract a certain amount of attention due to the fact that it had been so bullish. However, when you look at the longer-term chart you can see that the $55 level in that general vicinity has caused a certain amount of distance. Ultimately, this is a market that I think has simply gotten ahead of itself.

WTI Oil Video 18.01.21

Brent

Brent markets also tried to rally a bit during the course of the week, but then gave back a significant strength. The 200 week EMA has offered resistance as well, so I think we could pull back a couple of dollars here in order to trying to find support. If we break down below the $50 level, then it is likely that we could go lower at that point. Pay attention to the US dollar, because if it does start to strengthen from a longer-term standpoint, that could really put a pummeling on the crude oil markets.

After all, this has nothing to do with demand, and everything to do with stimulus and currency devaluation in the United States. Ultimately, the market has a lot of searching to do for any real demand, and it should be noted that as price continues to rise, shale producers in the United States will put pressure on the oil market.

For a look at all of today’s economic events, check out our economic calendar.

Silver Weekly Price Forecast – Silver Markets Choppy

Silver markets have gone back and forth during the course of the week, showing signs of choppiness and indecision. By doing so, this suggests that the market is simply focusing on whether or not there is enough stimulus out there, as later in the week there were concerns about whether or not Joe Biden could get a $1.9 trillion stimulus package through Congress. Silver will move back and forth based upon these expectations, but there is still a lot of support underneath and therefore I do not have any interest in shorting silver until we break down below the 50 week EMA, or essentially the $22 level. This means that we could continue to go lower in the short term, but I do think longer term we will continue to see buyers attracted to the precious metals markets.

SILVER Video 18.01.21

The $26 level is resistance above, and I think that if we can break above there then it could open up a move towards the top of the candlestick from the previous week, reaching towards the $28 level. If we can break above there, then it is likely that the market could go towards the $30 level. Once we break that level, then this market is ready to go much higher. I think we will continue to see noise over the next couple of weeks but from a longer-term standpoint I truly like silver a lot. In fact, I not only have been trading silver in the futures market, but I have been buying physical silver as well.

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Natural Gas Weekly Price Forecast – Continue to Find Sellers Above

Natural gas markets have tried to rally a bit during the course of the week but gave back the gains near the $2.80 level. We have not quite formed a shooting star, but it certainly suggests something similar. Ultimately, we are getting close to the warmer time of year that will cause demand for natural gas to plummet overall. That being said though, the market will continue to look at the possibility of stimulus pushing demand higher, but at this point in time there is so much out there in the way of supply that it is difficult to imagine that natural gas will simply take off to the upside for a bigger move. All things being equal, this is a market that I think will offer selling opportunities given enough time.

NATGAS Video 18.01.21

As we roll into the spring, the market is likely to go looking towards the $2.25 level, possibly the $2.00 level underneath. That is an area that previously had been resistance, so it should be supported, not only do to that, but the fact that it is a large, round, psychologically significant figure. Furthermore, we have the 200 and the 50 week EMA indicators slicing through this general vicinity that we are at right now, so I think that causes a little bit of technical noise to begin with.

I have no interest in buying natural gas, at least not this time a year as we are in the wrong part of the year to expect massive amounts of demand. After all, we are already trading the February contract, and it is only a couple of weeks before we roll over to the March contract.

For a look at all of today’s economic events, check out our economic calendar.

Gold Weekly Price Forecast – Gold Markets Trying to Stabilize

Gold markets have had a little bit of a rough week, as traders continue to determine whether or not there is going to be a significant stimulus package coming out the United States. Ultimately, there will be but there has been some questioning of the size of the stimulus package, perhaps not as big as the $1.9 trillion that Joe Biden is hoping to achieve. If that is going to be the case, then it makes quite a bit of sense that the market is still kind of treading water in general, trying to figure out what to do next. I believe that the 50 week EMA underneath will offer a significant amount of support, and I do think that eventually we will go looking towards the top of the weekly candlestick from the previous week. This does not mean that it is easy to get there though.

Gold Price Predictions Video 18.01.20

Ultimately, this is a market that I think eventually will find buyers jumping into pick up gold “on the cheap”, due to the fact that there is a certain amount of stimulus coming from everywhere going forward, and it certainly looks as if the $1750 level could be a massive support level as well. Furthermore, it would simply be a pullback and 38.2% on the Fibonacci retracement tool, which typically means that there should be quite a bit of momentum over the longer term to continue the trend. At this point, I would wait for some type of supportive candlestick in order to get involved, and then start aiming for the highs again. I do believe that this is what gold will do over the next year or so.

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USD/JPY Weekly Price Forecast – US Dollar Struggling at 104 JPY

The US dollar initially rallied during the course of the week to break above the ¥104 level, only to turn around and form a bit of a shooting star. Ultimately, this is a market that I think continues to struggle going higher, mainly due to the fact that there is a massive amount of stimulus out there that will continue to cause issues. After all, if there is going to be a flood of stimulus in the United States than people will start to step away from the in fact, one of the main reasons we did see a bit of a rally during the week was the fact that we started to see interest rates rise as people demanded more yield for US bonds. However, that becomes a short-term play, and it now looks as if those yields are starting to calm down a bit.

USD/JPY Video 18.01.20

Nonetheless, the shooting star of course is a negative sign and I think there is a significant amount of resistance to be found all the way to the ¥105 level. If we were to break above there, then obviously things would change quite drastically. Until then, I think that people will be looking to fade short-term rallies, and that is part of the problem with trading the weekly chart here. Quite frankly, a huge portion of the trade has already happened, so you probably need to drill down to at least the daily timeframe if not lower. Longer-term trading will be difficult for this market even though I think that it eventually goes looking towards the ¥101 level.

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GBP/USD Weekly Price Forecast – British Pound Digesting Gains

The British pound has gone back and forth during the course of the week, showing signs of exhaustion after a huge move to the upside. The market going back and forth makes quite a bit of sense after this massive move higher, as we have seen the 1.36 level offer resistance, just as the 1.35 level underneath acts as support. All things being equal, this is a market that needs to digest some of these gains for a while, which is typical after a huge move like we have seen. Nonetheless, the British pound is historically cheap, so that is worth paying attention to. I think ultimately, we will go higher but we may have a little bit of work to do in the short term.

GBP/USD Video 18.01.20

The market continues to try to price and stimulus coming from the United States, which will weigh upon the US dollar in general. In fact, that might be one of the bigger drivers of this market going forward, not necessarily the need for the British pound to be bought based upon strength. All things being equal, I think we are more than likely going to go towards the 1.50 level over the longer term as we normalize a bit in the United Kingdom. Remember, markets tend to look into the future, so eventually we will start to price in the United Kingdom after the pandemic and of course after the lockdowns and vaccinations. I do not have any interest in shorting this pair, at least not anytime soon. This is a market that seems to continue to look towards higher prices given enough time.

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GBP/JPY Weekly Price Forecast – British Pound Touches 200 week EMA

The British pound has gone back and forth during the course of the week, reaching towards the 200 week EMA, which has been important more than once, thereby it is not a huge surprise to see that we pulled back from there. At this point, the market continues to see the ¥140 level underneath as massive support, and therefore I think that if we pull back towards that area, we will see people continue to push this market to the upside. On the other hand, if we were to break above the top of the candlestick for this previous week, then the market could go towards the ¥145 level.

GBP/JPY Video 18.01.20

The market is trying to get back towards a more historic norm price, and therefore I think that we do eventually see this market going to the upside. The ¥150 level is probably the longer-term target, but that might be something that we are looking at towards the end of the year, assuming that we continue to see a reflation trade and of course that the United Kingdom turn things back around after the Brexit fiasco and of course the lockdowns. At this point, I think we will probably see a lot of noise in general, so keep in mind that your position size needs to be small enough to make it a reasonable trade to be involved in, but at this point I think you do get an opportunity to pick up value underneath and should look at pullbacks as a bit of a gap. I do not have any interest in trying to short this market, at least not until we were to break down below the ¥137 level.

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