Market Reviews 07 Jan 2021

Jan 07, 2021


The European currency is trading slightly ahead of the US dollar today, holding close to record highs, updated once again yesterday. On January 6, negative macroeconomic statistics was released, which, however, had practically no effect on the demand for risk. The composite Markit Manufacturing PMI in the Eurozone in December fell from 49.8 to 49.1 points with neutral forecasts. The services sector lost more, decreasing from 47.3 to 46.4 points. The harmonized consumer price index in Germany in December fell by 0.7% YoY, coinciding with the dynamics of the decline in November. Analysts had expected the index to improve to −0.6% YoY. Inflation in Germany gained 0.6% MoM after falling 1.0% MoM in the previous reporting period. On January 7, investors are focused on a block of statistics on retail sales, consumer inflation, and the level of consumer confidence in the Eurozone for November-December.


The British pound is trading in both directions against the US currency today, consolidating at 1.3600. GBP is actively losing its “bullish” sentiment, responding to the new quarantine imposed by the UK authorities amid a sharp increase in the coronavirus incidence. In addition, the market reacts increasingly negatively to the prospects for trade relations between the UK and the EU, despite the fact that the parties managed to conclude a trade agreement at the end of 2020. However, some investors are very optimistic, hoping that the UK will be able to benefit in the medium or long term from an active vaccination campaign that is currently underway. The current vaccination plan suggests about two million vaccinations per week, which will put the UK at the top of the list very soon. Macroeconomic statistics from the UK released on January 6 was disappointing. The Services PMI fell from 49.9 to 49.4 points with the unchanged forecast.


The Australian currency is showing ambiguous performance against the US dollar but is holding near record highs and the resistance line at 0.7800. The instrument is still supported by weak positions in the US currency, as well as some enthusiasm in the oil market, where prices are rising in response to the OPEC+ decision to keep production restrictions in February and March. Published on Thursday, macroeconomic statistics from Australia was ambiguous. The volume of exports in November slowed down from +4.4% to +3%, while imports over the same period rose sharply from +2% to +10%. As a result, the trade balance at the end of November fell more than expected, from 6.583 to 5.022 billion against the forecast of 6.200 billion Australian dollars. At the same time, the indicator of issued building permits in November increased by 2.6% MoM, which turned out to be above the market expectations by 0.1%. In annual terms, the number of permits increased by 15% YoY, accelerating from the previous value of 14.3% YoY.


The US dollar continues corrective gains against the yen, recovering from record lows since March, updated yesterday. The instrument is supported by technical factors, as well as the threat of noticeable restrictions in Japan due to new outbreaks of COVID-19 in the country. In turn, the negative macroeconomic statistics from the US put pressure on USD on January 6. The ADP report on employment in the private sector showed a decline of 123K (for the first time since April). Analysts had expected the positive dynamics to remain at +88K. The Markit Services PMI in December showed a decrease from 55.3 to 54.8 points with an unchanged forecast. Composite PMI for the same period corrected down from 55.7 to 55.3 points, which also turned out to be worse than the market’s neutral forecasts.


Gold prices are declining today, developing a strong corrective impulse that was formed yesterday in response to the strengthening of the US currency. In particular, investors were encouraged by the victory of the US Democratic candidates in the second round of elections in Georgia. Thus, the Republican Party lost control in the Senate, and the final word will now rest with Vice President Kamala Harris. It is expected that this will allow Joe Biden to move initiatives through Parliament faster, which should positively affect the prospects for fiscal policy. Additional pressure on gold is exerted by the growth in the yield of US Treasury bonds. The yield on 10-year securities surpassed 1% for the first time since the outbreak of the pandemic in early 2020.