Market Commentary – February 4, 2021

Kevin Jock

4th February 2021

    As the struggle between Main Street and Wall Street subsides, mixed corporate earnings yesterday saw scattered results among U.S. benchmarks ending the 2-day strong rebound. Nasdaq underperformed slipping 0.7% despite Alphabet hitting record earnings, Dow edged slightly higher and the S&P500 remained unchanged. Speaking online, Chicago Fed President Evan’s reassured investors that President Biden’s $1.9tn would lift inflation via a faster recovery without overheating the economy. Joe Biden refuses to concede any grounds to reduce the $1,400 payment telling Democrats anything less would break a promise he was voted in for. Meanwhile, St. Louis Fed President Bullard cooled scepticism that markets are overextended saying prices reflect current optimism about growth.

    Dragged into the frying pan, former ECB chief Mario Draghi accepted President Mattarella’s request to assist in forming a new Italian government following the collapse of Prime Minister Conte’s coalition. On top of a dysfunctional government, the country has been hit harshly by the COVID-19 pandemic. The news was received well by European investors as both the STOXX and DAX ended the day in positive territory. Meanwhile UK’s FTSE100 stayed unchanged, cautious of comments made by the BOE. Governor Bailey exuded an upbeat tone as Britain’s rolled-out it’s vaccines faster than European counterparts, alluding to a more pronounced economic recovery whilst downplayed previous comments of considering negative interest rates.

    Indices pointed lower coming into Asia. Weaker all-round earnings saw Australia’s S&P200 lose 51 index points, the Hang Seng 251 points as Mainland China capital inflow eased and Japan’s Nikkei down 223 points.

    The dollar crept higher on Wednesday on the back of better than expected leading macro indicators. Crude continues to notch higher, hitting $56 with reassurances from OPEC’s meeting to maintain current production policy. Gold drops to 1,833 whilst bitcoin regains popularity settling above 37,000.

EURGBP

Figure 1 (Source: IS Prime): EURGBP Daily : Post-brexit stability and vaccine roll-out disparity favouring the UK, see’s the British pound out-perform EURGBP year to date.

Headliner to Review

  • The final Purchasing Managers Index (PMI) of the service industry in the Eurozone was increased unexpectedly after the seasonal adjustment in January this year, from the previous value of 45.0 to 45.4. The market originally expected to confirm the initial value of 45.0, but it has contracted for five consecutive months. The service industry PMI of the five countries declined, especially the slowdown in Ireland, which was the worst in eight months.
  • The US ISM service PMI unexpectedly rose for two consecutive months in January this year, from 57.7 to 58.7, the highest since February 2019 (58.8). It has expanded for eight consecutive months. The market expected It fell back to 56.8.
  • The ADP Non-Farm employment in US increased by 174,000 on a monthly basis, which was the first decline in the previous eight months, far exceeding market expectations for an increase of 49,000.
  • US. crude oil inventories unexpectedly fell for two consecutive weeks for the week ending January 29, 2021, but only continued to drop by 994,000 barrels per week (previous value dropped by 9.91 million barrels) to a total of about 47566 million barrels. The market had expected an increase of 446,000 barrels

Headliner to Watch

  • The BOE will deliberate on monetary policy with no changes to rates or quantitative easing expected. Though investors will scour the statement for signs the central bank is becoming less dovish and more optimistic for 2021.
  • Unemployment claims in the US expected to improve from 847k to 828k.
  • RBA will release their monetary policy statement tomorrow detailing their justification for Tuesday unchanged rate decision. Meanwhile RBA Gov Lowe will testify before House of Representatives Standing Committee on the central banks economic outlook for 2021.

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Authors:
Antony Tan
Ben Li
Kevin Jock