In a week which saw a surprise win of Senate control by Joe Biden’s incoming Democrat administration, and what was effectively the end of the Trump era, as the President was banned from social media after encouraging his supporters to break into Congress, markets took an initial post-holiday opening dip and then rallied again to new highs. Markets shrugged off the NFP Miss, and also the rising COVID-19 second wave, placing their hopes in the vaccines and a higher level of ’stimulus check’, now GOP resistance has been removed.
Next week is somewhat of a pause, as unusually, earnings season does not start until Friday, as always, opened by JPM, C, and WFC who tend to be taken as bellwethers. It remains to be seen whether the dying Trump administration does anything unusual, prior to the Biden inauguration the week after. The week is light on macro data (only US inflation really matters), but heavy on CB speakers, culminating with Chair Powell on Thursday.
The new trading year opened with a sharp sell-off in equities, possibly COVID-linked, but more likely an undoing of end-of-year window dressing. Notably all FANGs fared worse than the market as a whole, although TSLA was bid. Sterling sold off on the first working day of the post-Brexit world, although EUR rose, meaning a slight uptick in USD. Gold and bonds rose and Oil fell, in line with the equity move.
Tuesday January 5
It was Turnaround Tuesday for stocks as they rebounded on hopes of a Dem win in Georgia, although VIX remained elevated showing how markets dislike uncertainty. A unified Congress and White House would indicate further stimulus. The safe haven dollar fell 0.4% on easing hopes, pushing yields and Gold up. Oil was also up in line with equities. FTSE was up following yesterday’s GBP fade, but DAX closed red on COVID fears.
Wednesday January 6
Today was a big day in US politics. The Democrats won both GA seats, ensuring control of Congress, and President Trump’s supporters broke through police lines into the Congress building (a symbolic assault on democracy itself) and the President himself was universally condemned for encouraging this. Social media companies banned him, many other Republicans distanced themselves and today may well be the end of the Trump era. The unified Congress result was seen as likely to produce more help for COVID, so tech money rotated into industrials, defensives and once again UK stocks, with FTSE having its best day since November. Copper (a green energy proxy) hit $8,000/t for the first time since 2013. The safe haven US dollar, and Gold, and bonds were down, and Oil was up in line.
Thursday January 7
All three indices hit new all-time highs today as the blue sweep euphoria continued. Oil was up and Gold, bonds and yen all fell. The dollar had hit it’s 30-month support level (89.25) on Wednesday, and so bounced back up. Normal risk-on today, as NDX outperformed and Europe underperformed.
Friday January 8
After faltering early in the day, after a disappointing -140k miss on NFP, and Dem objections to the $2,000 stimulus level, markets rallied strongly into the close. NDX rose all day and outperformed. The strength of vaccine/stimulus sentiment clearly outweighed anything else in the end. Once again, Oil was up, and Gold, bonds and yen down in line. The 10-year yield broke through 1% for the first time since the pandemic. Overall the dollar was up again, for the technical reasons stated for Thursday. Overall, stocks had their best week since November, better than any December week, showing the January Effect in action.
WEEKLY PRICE MOVEMENT
Indices were up this week, with FTSE strongly outperforming up 6.39%. The strongest forex pair was EURGBP up 1.55%. Cryptos were amazing, with Bitcoin up 40% to over $40,000 and Ethereum posting its best every week, up 64.9%, justifying the faith of the ‘HODL’ community. FANGS definitely underperformed, as investors preferred COVID-damaged stocks, also shown with NDX underperforming for the week.
I bought EURUSD last week and it is up 0.79%. Having filed 25 of 42 wins and 9.81% profit in 2020, I am starting again, so it’s 0.79%, 1 of 1. I think EUR has further to go, whereas NZD is very extended, so I will buy EURNZD this week, avoid a guess on the dollar.
Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. The equity and index prices are now based on the cash close each day.
NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)
- Earnings season starts Friday
- Heavy CB speaker list
- US and Chinese inflation
- OpEx week
Monday, January 11
A very quiet data week, where focus will be on the stimulus package. The current P/E of SPX is over 38, so the market is fragile and susceptible to any major problems.
00:30 Aus Retail Sales
01:30 China CPI (YoY e0.1% p-0.5%)
14:00 BoE Tenreyro speech
14:30 BoC Business Outlook Survey
15:00 BoE Governor Bailey speech
Tuesday January 12
No significant data at all today, but three CB speakers. There is a rate decision in Russia.
10:00 BoE Broadbent speech
14:35 Fed Brainard speech
19:00 Fed Rosengren speech
Wednesday January 13
US Inflation is the biggest macro print this week which shows you how quiet it is. There is a rate decision in Poland
10:00 Eurozone Industrial Production
13:30 US CPI (Core MoM e0.1% p0.2%)
18:00 Fed Brainard speech
19:00 US Monthly Budget Statement(Dec)
19:00 Fed Beige Book
20:00 Fed Clarida speech
Thursday January 14
Even today’s Jay Powell speech is only a discussion at Princeton University.
02:00 China Imports/Exports/TB (time approx.)
13:30 US Jobless Claims
17:30 Fed Chair Powell speech
Friday January 15
Today is likely to be the most volatile day of the week as it’s OpEx day. More importantly it is ‘JPM day’, the traditional opening of earnings season, where America’s largest bank, JP Morgan and co announce their earnings, guidance and usually add some valuable insight on their view of the market. Also reporting before the bell are WFC and C, the third and fourth largest banks in the US (BAC, the second largest report next week). Every business is a bank customer, so they are a bellwether of the economy as a whole.
07:00 UK Mfr/Ind Production
07:00 UK GDP (Nov MoM)
13:30 US Retail Sales (Control Group e0.2% p-0.5%)
13:30 US PPI
15:00 Michigan Prelim CSI
