Market Commentary – January 29, 2021

Kevin Jock

29th January 2021

    Wall Street’s overnight bounce faded as Asia-Pacific benchmarks opened on Friday. Growing concerns over a potential cash squeeze in China saw Australia’s S&P200 chip away 144 index points. With the Australian services sector restricted by COVID-19 related measures, mining companies have thus far supported the market on the back of China’s V-shape recovery. However, as China’s short-term borrowing cost spiked back to pre-COVID-19 levels, construction activity will inherently be affected. Meanwhile, the Hang Seng fell 177 points as Q4 GDP contracts 6% whilst the Nikkei declined 647 points from end-of-month portfolio rebalancing by pension funds.

    Volatile session across U.S. indices on Thursday, with a 3% daily range but gaining just under 1% into positive ground. News of the day, Main Street’s rebellion hampered by trade restrictions by the likes of Robinhood, Charles Schwab and Interactive broker preventing buying of volatile stocks. Statements released by affected brokers validated the moved as a risk management decision to protect investors.

    European counterparts closed higher over upbeat earning reports, despite the EU’s vaccine tussle with AstraZeneca and continuing coronavirus restrictions. Across the channel, UK’s FTSE100 ended slightly in positive territory.

    Improving risk-appetite saw the U.S. dollar edge lower. Since her confirmation, Treasury Secretary Yellen has rejected a strong dollar policy. Consequently, her remarks have opened the administration up to the possibility of currency wars claims.

    Bitcoin received a boost back above 33,000 from Ray Dalio, after the founder of Bridgewater Associates called the cryptocurrency “one hell of an invention” to protect against fiat money debasement. Likewise, Reddit frenzy caused silver to spike 4.6% to $26.45 following a post encouraging people to purchase iShares Silver Trust for another short squeeze. Elsewhere crude slides but remain above $52 and gold at $1,843.

XAGUSD-1

Figure 1 (Source: IS Prime): XAGUSD 1-minute : Reddit frenzy seeps into metals market as mainstreet attempts to short squeeze an ETF.

Headliner to Review

  • In the fourth quarter of last year, the US advance gross domestic product (GDP) dropped to 4% (the increase of 33.4% in the previous quarter is the highest ever), in line with market expectations.
  • The U.S. Consultative Council’s Leading Economic Indicators (LEI) rose for eight consecutive months in December last year, but the month-on-month increase further narrowed to 0.3% (the previous value was slightly revised up and continued to rise by 0.7%) to 109.5, which was in line with market expectations. During the period, the Synchronous Index (CEI) also rose for eight consecutive months, and the month-to-month increase accelerated to 0.3% (the previous value was revised down and only continued to rise by 0.1%) to 103.3.
  • The number of people claiming unemployment benefits for the first time in the United States fell for two consecutive weeks, and the weekly decline expanded to 67,000 (the previous decline was significantly revised down to only 13,000), and the total number has plummeted 847,000 (the previous total was revised up to 914,000), which is far lower than the market expectation of 875,000.

Headliner to Watch

  • EU member states expected to show Q4 slowdown and even contraction as lockdown hurt growth
    • French GDP expected to contract -4% from 18.7%
    • German GDP expected to experience zero growth
    • Spanish GDP expected to fall from 16.4% to -1.4%
  • Canada expected to continue quarterly growth at 0.4%. Though government implemented restrictions hampering GDP have been called into question, Deputy Minister Freeland reassured stating that “the best economic policy is a strong health policy”.

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Authors:
Antony Tan
Ben Li
Kevin Jock