Archive for Economics & Fundamentals

Biden Unveils $1.9tn Aid Package

By Orbex

Jobless Numbers Spike

The dollar had a choppy session on Thursday. However, it maintained its stance above the 90 threshold.

This comes after President-elect Joe Biden unveiled a $1.9tn stimulus plan for the US economy before he takes office.

The plan will come at a time of uncertainty for the job market, as weekly unemployment claims spiked far more than expected last week to reach a five-month high.

EURUSD has been retreating in response to the stimulus package, as it closed 0.14% lower.

Another Week, Another Variant

The pound kept the rally going as it closed 0.34% higher yesterday touching the 1.37 handle.

Recent confirmation from the BoE regarding a move away from negative rates has propped up sterling, whilst we await today’s GDP data.

Meanwhile, the UK will begin banning travelers from South America, amid concerns over a new variant that is sweeping the country.

Can the vaccination rollouts happen quickly enough to contain the virus?

Indexes React to Stimulus

US indices ended lower on Thursday after the Dow and Nasdaq both cut gains after touching record intraday levels.

Investors, economists, and political analysts will be looking ahead to Biden’s economic agenda later today.

The rallies are set to continue unless the upcoming fiscal aid is below expectations.

Gold Closes Mixed

Gold closed on an even keel yesterday as traders held off moving the yellow metal from its slumber.

Continuous coronavirus infections, civil unrest, and the impending US stimulus, combined with a slow rollout of vaccinations have kept gold consolidated.

The $1850 ceiling has weighed heavy on the metal, as we look ahead to next week’s inauguration.

Oil Jumps on Stimulus Bandwagon

WTI was another trade lifted by relief headlines, as it closed 1.65% higher on Thursday.

This comes despite new and extended lockdowns that promise to slow any oil demand rebound that was expected for 2021.

Also serving as a catalyst for rising prices are rumors of a tightening of supply, after Saudi Arabia’s move to pump less oil for February.

By Orbex

Muted reaction to $1.9T stimulus

By Han Tan, Market Analyst, ForexTime

Asian stocks are mixed while US futures are edging lower, even after US President-elect Joe Biden unveiled his US$1.9 trillion fiscal stimulus plan. There appears to be a some “sell-the-news” price action in equities, given that a lot of the optimism surrounding another injection of US fiscal stimulus had already been priced in ahead of the keenly-awaited announcement.

Markets are also understandably apprehensive following Biden’s foreboding remarks in addressing his proposal’s costs. A seemingly exhausted stock market reacted to the threat of higher taxes, and the intended hike in the minimum wage, by taking some risk off the table and booking in some profits.

Promise of more fiscal stimulus may come with caveats

There’s already chatter that the incoming Biden administration may not stop at just US$1.9 trillion and could roll out more fiscal stimulus. Such expectations have in recent past buoyed risk assets.

However, if the incoming fiscal support is accompanied by more risk-sentiment dampeners, such as the threat of heightened regulations, that may not have the intended booster effect on equities.

Pandemic woes still evident

Investors will have plenty to digest over the long holiday weekend for US markets. Besides the promise of more fiscal stimulus, market participants have to reconcile the still-heady heights in stock markets with the sobering realities amid the pandemic. Covid-19 cases are still raging throughout the US and Europe, and the vaccine’s rollout needing time to have its intended effect on the real economy.

In the meantime, the economy’s dire need for more support couldn’t be starker. Thursday’s weekly initial jobless claims rose back towards the one million mark to post its highest figure since August. More signs of economic angst may also be unveiled later today. Retail sales may show zero growth in December, while consumer confidence is expected to have dipped this month.

Gold climbs as Powell hushes tapering talk

Spot Gold got a slight lift as US 10-year yields dipped to the 1.11 percent level, after Fed Chair Jerome Powell poured cold water on talks surrounding a potential pullback in the central bank’s bond-buying programme. Although the 10-year yields remain significantly lower than pre-pandemic levels, they have stayed stubbornly above the psychologically-important one percent mark since last week.

The recent steepening of the yield curve indicates that markets are still optimistic about the US economic outlook and the inflation outlook. And with the Fed Chair pledging to provide ample warning time before any such tapering, so as to avoid a repeat of the infamous ‘taper tantrum’ of 2013, Gold bulls can take heart from the continued central bank support that should limit the precious metal’s downside for a while more.

 

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


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ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Five economic effects from the Democratic sweep in Washington

By Michael Plouffe, UCL and Thomas Gift, UCL 

– Joe Biden will inherit among the most challenging political and economic environments of any US president. With America reeling from the storming of the Capitol by pro-Trump insurrectionists, not to mention a raging pandemic, President Biden must heal partisan wounds and put the world’s largest economy back on track.

For the first time in a decade, a Democrat president has both congressional houses on his side – albeit with slim majorities. So what will Biden’s economic agenda entail at home and abroad? Below are five key themes.

1. Additional stimulus and pandemic response

More stimulus is almost certain. Congressional Democrats, urged on by President Trump, pushed for US$2,000 cheques for each American in December’s stimulus bill, only to be blocked by Republicans.

The size of the next stimulus cheques remains unclear – figures between US$1,400 and US$2,000 are being floated. Expect extended protections for renters and support for small-business owners and self-employed workers. Greater aid to state and local governments might also be on the table.

Promises by Biden to “follow the science” and calls for all US citizens to wear masks during his first 100 days in office should help slow the spread of new, highly contagious variants of the virus. Trump labelled Operation Warp Speed a “monumental achievement”, but vaccine distribution has been clumsy. Biden has pledged to accelerate vaccine distribution, but this will probably hit roadblocks, both around transportation and end-user delivery. Unlike Trump, Biden wants to distribute all vaccine doses immediately, rather than keep second doses in reserve.

Additional stimulus should mitigate some of the effects the pandemic has had on inequality, while an effective approach to public health and extensive vaccine roll-out should encourage an eventual return to economic growth.

2. Infrastructure and climate change

The American Society of Civil Engineers recently graded US infrastructure a D minus. Biden has pledged to invest US$2 trillion in roads, bridges, transit, housing, broadband, clean energy and other initiatives. He is pitching infrastructure as vital to boost US global competitiveness, increase national employment and curb climate change.

Infrastructure is often heralded as a rare policy issue where bipartisan compromise is feasible. Yet Trump’s 2017 proposal to generate roughly US$1 trillion in investments faltered amid opposition.

Sweeping climate provisions pushed by progressives may now limit support for Biden’s infrastructure agenda, since most opposition to infrastructure spending and climate-related measures comes from Republicans. A Democrat-controlled Congress may renew hopes for action, however, including rolling a pared-down set of infrastructure measures into a new stimulus.

Although infrastructure spending would fuel future economic growth and provide jobs in the short term, it would also increase government debt, which has risen during the pandemic from 106% to 136% of GDP.

3. Big tech

In 2019, the Department of Justice launched an antitrust investigation into some of Silicon Valley’s most successful corporations. The first fruits recently emerged as cases were filed against Facebook and Google.

Regulation of big tech has been notably lax for several decades, even as questions arose about whether the firms’ spread into seemingly disparate operating arenas was in consumers’ interests. There’s now bipartisan appetite in Congress for tougher antitrust legislation and enforcement, and in some cases, break-ups.

Biden views break-ups as “something we should take a really hard look at”, but has also sounded notes of caution. His incoming administration has numerous ties to Silicon Valley. Even if break-ups don’t occur, expect more active regulatory oversight — from takeover activities to data privacyas well as greater transparency over the algorithms employed to both collect and disseminate information.

Regulatory reform in the tech sector will create some uncertainty among tech firms, especially if common monetisation practices for personal data become unworkable. However, reducing big tech’s grip on innovation and market share would likely increase consumer choice in the longer term.

4. Relations with China

In 2011, Biden said that “a rising China is a positive, positive development” for America and the world. Today, his rhetoric has done a 180-degree turn to become much more wary. But compared to Trump’s gloves-off approach, Biden’s task will be to evolve the current stalemate so that it’s not “lose-lose”.

Observers of all political stripes view Trump’s trade war with China as an unmitigated economic disaster. Not only did he fail to achieve major concessions, the trade war slowed US economic growth.

Biden has said he will not immediately remove tariffs, but some forecasters expect them to be dialled back eventually. The new president will surely take a more diplomatic approach that engages more US allies in the region and expands the dialogue with China beyond trade to rules on investment and intellectual property and human rights.

The short-term use of existing tariffs as a bargaining chip will extend the trade war’s negative impact on the US economy, but a mutually beneficial outcome to negotiations would be a welcome, if admittedly unlikely, development.

5. Relations with the UK and Europe

Many Democrats would like to see the US both harmonise trade relations with the EU and reinforce the “special relationship” with the UK, but don’t expect Biden to broker a bevy of new economic alliances abroad.

Unfortunately for the UK, which has increasingly looked across the Atlantic in the wake of Brexit, Biden has pledged that he “won’t enter into any new trade agreements until … [the US has] made major investments here at home”. Biden is hardly an economic isolationist, but he does tout a more moderate stance toward free trade than Democratic predecessors Obama and Clinton, apparently hoping it might mute anti-globalist opposition.

Biden has also promised to re-engage with European allies and to take a more collaborative tone than Trump. Gaining allies in American efforts to reform the World Trade Organization will be one of Biden’s first crucial tests on this front, with considerable bipartisan agreement in Washington over issues like the lengthy dispute settlement process and “judicial overreach”.

Whether Biden can get the EU to cooperate should offer an indication of how successful his international coalition-building might be.The Conversation

About the Author:

Michael Plouffe, Lecturer in International Political Economy, UCL and Thomas Gift, Associate Professor and Director of the Centre on US Politics, UCL

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Once again, fiscal stimulus takes centre stage

By Hussein Sayed, Chief Market Strategist (Gulf & MENA), ForexTime

Investors do not seem bothered by Washington’s political turmoil. Trump became the first US President to be impeached twice, a little more than a year since his first. While he will most likely continue to serve the remaining six days of his term, his political future is now uncertain with a high possibility that he is barred from running for the presidency again if he is found guilty of incitement of insurrection.

Global equity markets inched slightly higher on the (second) impeachment day with US stocks continuing to hover near their record highs. Political noise is apparently of the least concern to investors who are looking forward to strong economic growth in 2021 and another big stimulus package from the new US administration.

According to Biden aides, the President-elect is set to reveal his plans for a COVID-19 relief package later today, which is likely to be somewhere near $2 trillion. The package will include significant funding for vaccine distribution, an extension to eviction moratorium, support for the unemployed, government aid and another sizable direct payment to American families. The latter is likely to be the trickiest part as most Republicans and some Democrats are against going too big. On the other hand, opting for a small package will disappoint investors and lead to profit-taking in equity markets. Finding the right balance will not be easy.

While political instability in Washington has so far been ignored, there remains a risk of profit-taking if violence on inauguration day escalates, especially as markets are almost priced to perfection. With valuations extremely overstretched, some investors need an excuse to book their profits and 20 January may provide this.

Another risk investors need to keep an eye on is how high bond yields go from here. The good news is we are not yet seeing significant inflationary pressure reflecting in data. US consumer prices rose 0.4% in December and when excluding volatile food and energy components, prices only rose 0.1%. Overall, rising inflation will be one of the hottest topics in 2021, but it’s too early for the Fed to announce any tapering of asset purchases. Any signs of this may bring an end to the Dollar’s decline as higher yields begin to attract Dollar inflows and make equities valuations harder to justify. This will be a topic to explore in detail later in the year. However, it will be interesting if the Fed’s Chair Jerome Powell provides any hints on this topic later today on a webinar hosted by Princeton University.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


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ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

How To Rewire Your Brain For Successful Trading

By Orbex

– As a forex trader, you are probably always on the lookout for the next tool that can help advance your trading plan, sharpen your strategy, and keep you at the forefront of your field.

However, has it occurred to you that the most useful tool readily available to you is your brain? And have you considered the advantages of reprogramming it to work to your advantage?

Here, we will discover how to build the habits and patterns that will ultimately lead you to forex trading success.

Our brains are in a constant state of flux. And it is this incredible ability to change and adapt that neuroscientists call Neural Plasticity.

So, what is neural plasticity, and how does it affect your daily life?

Your brain is more malleable than you think, with all your daily experiences shaping and reshaping it by the second.

A fascinating organism, the brain is made up of an estimated 100 billion neurons. These neurons are responsible for creating a total of 100 trillion neural connections. This is considering that each neuron may be connected to 10,000 others. That’s a lot of brain power that you can use to your advantage and trading success.

The connections between these brain neurons are called neural pathways. The more we think about or practice certain things, the stronger the related neural pathways will become.

Say for instance, that you tend to sleep in daily but would like to start an early morning exercise routine. By taking concrete steps to start exercising at 7 am, you will slowly build the habit of becoming an early riser. This will entail meeting with a personal trainer for example, buying new fitness gear, and going to sleep a little earlier each night. By committing to these actions every day, you are forging the path for stronger neural pathways, until it becomes a hardwired habit to wake up at 6 am and start your exercise by 7.

Likewise, when aiming to create a new fx trading routine, the actions you take daily will slowly begin to rewire your brain.

To support this, and according to the neuroscientist Michael Merzenich from the book “The Brain That Changes Itself” written by Norman Doidge, by practicing a habit under the right conditions, you can change hundreds of millions, and possibly billions of the connections between the nerve cells in your neural pathways.

How does this apply to forex or stock trading?

Forming the habits that determine your success in any endeavor requires persistent action. This will lead to forming new neural pathway connections, strengthening existing ones and weakening the connections no longer in use.

This means that by practicing healthy trading habits, you can start to let go of any destructive behaviors which have been holding you back and build a helpful routine to support your trading plans and strategies.

How you can start to build stronger neural connections

  • Incorporate positive emotions

Fuel your thoughts and actions with strong positive emotions. This gives your thoughts the power to engage your neural pathways. For example, when closing a winning trade or having a good trading day, focus on the positive emotions related to this win, and even share it with your family or friends.

  • Practice makes perfect

You can strengthen the new neural pathways that you have created into concrete habits through repetition and continued practice. Think about your trading goals and strategy; feel the joy of achieving these goals; and then put your strategy into action.

  • Visualize your accomplishments

Our brains cannot really tell the difference between something real or imagined. Research shows that every time you are thinking, you engage and strengthen the neural pathways connected to whatever you’re thinking about.

So, spend a few minutes visualizing your trades. Decide that you will succeed at a set number of CFD trades for example today, and then set out to make it happen.

  • Meditate

Meditation aims at disengaging the busy mind and allowing access to a much quieter state of being.

When you are stressed, your mind instinctively relies on the strongest neural pathways, and looks for the path of least resistance. Yet, to fully benefit from neural plasticity and succeed in creating different habits, you need to turn off your stress response, and stimulate the relaxation response.

For example, if you would normally let your trades run for too long, learn where to place the appropriate stop loss orders to minimize your risk. Or if you tend to compulsively check the news every 5 minutes, learn to let go and relax every once in a while.

When practiced daily, there are countless benefits to meditation. It promotes higher brain plasticity and leads to healthier cognitive and emotional processing. And we all know how important it is to steer clear of emotional trading!

In conclusion

The secret to sustained success lies in repetition. Whatever you focus on will surely flourish and grow.

These are general tips that you can apply in your daily life to focus your mind and rule out distractions. When you apply them to your forex trading, you will be pleasantly surprised at how effective these tricks may be.

Reference: Neural Plasticity: 4 Steps to Change Your Brain & Habits by Dr. Hilary Stokes & Dr. Kim Ward

By Orbex

What does Trump’s impeachment mean for markets?

By Han Tan, Market Analyst, ForexTime

President Donald Trump has been impeached by the House in the aftermath of last week’s riots on Capitol Hill. Trump now has the unenviable mark of being the only US President to be impeached twice, occurring just days before he is to hand over the reins of the White House to President-elect Joe Biden on 20 January.

Yet markets cared little for the political drama, as US stocks continue to struggle for meaningful direction.

Here’s how US benchmark indices fared on Wednesday, with tech counters leading the pack:

At the time of writing, S&P 500 futures can only inch higher, although it continues flirting with overbought territory (14-day relative strength index nearing the 70 mark).

However, US equities may receive a double boost on Thursday!

Biden to unveil stimulus plan details

The incoming US President has been teasing global investors about the “trillions” that could be poured into the US economy to help it overcome the pandemic. Such measures are set to be announced later today, which may include US$ 2000 stimulus checks for American households. A stubbornly high weekly jobless claims print, also due on Thursday, could underscore the need for more fiscal stimulus.

Stock markets had clearly reveled at the thought of more incoming US fiscal stimulus, especially in light of Democrats enjoying significantly less political resistance after winning both Georgia Senate runoffs. The S&P 500’s current record high was registered on 8 January, the same week those polls concluded.

Should markets like what they hear, then the reflation trade may resume across asset classes, potentially recharging the rotation play in equities while sending Gold higher as investors resort to assets that may help them outpace stimulus-fueled inflationary pressures.

 

Fed Chair to settle tapering debate?

Fed Chair Jerome Powell also has the opportunity to lay down a solid marker in the tapering debate that has engulfed markets his past week. Given the forward-looking nature, markets have been trying to pre-empt when the Federal Reserve might ease up on their bond-buying programme. Markets thought it could even happen sometime this year, in anticipation of a US economic outperformance that’s been aided by the trillions in both fiscal and monetary policy support.

The shift in narrative sent Treasury yields spiking, Gold prices stumbling, and the Dollar rebounding.

Fed officials have recently sent mixed signals about when they might unwind some of their policy support, although the latest commentary by Fed Governor Lael Brainard appears to pour cold water on the idea.

A more definitive statement by the Fed Chair himself could cause major moves across asset classes.

Should Powell shut the door tight on the very notion of tapering in 2021, that could see Treasury yields unwinding more of their gains, dragging the Greenback back down with it, while helping restore Bullion to recent highs.

 

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

German 2020 GDP & The EU’s Potential Next Recession

By Orbex

Tomorrow we have the release of a preliminary, non-seasonally adjusted estimate of Germany’s GDP growth during last year.

While it’s important news, we don’t expect it to move the market. This is because it’s not one of the official measures, but more of a “best guess” based on a compilation of metrics.

More importantly, it doesn’t have all the December data.

But, getting better information on how the economy is developing in the largest economy of the Eurozone is important to understanding where the euro is likely to go.

And, well, it’s not exactly good news.

Another recession?

Europe managed to pull itself out of recession by posting stellar growth in the third quarter.

However, it was still far from recovering to pre-pandemic levels. The reimposition of lockdowns across Europe has led many analysts to project another couple of quarters of negative growth.

This would put Europe back into recession.

In Germany’s case, covid case numbers were already high enough in mid-October for a new round of economic impact to be inevitable. So, businesses started adjusting.

With most of Q4 dominated by some form of economic restrictions, it’s unlikely that Germany was able to secure quarterly growth.

The projections

The consensus among economists is that Germany’s GDP change for 2020 will come in at -5.0%. This is in comparison to 0.6% growth during the prior year.

We have to remember that Germany just barely escaped falling into technical recession a few times prior to covid.

In fact, even before the first covid case in Europe, Germany was about to have negative growth in Q1 2020 and only avoid a recession because the final quarter of 2019 had no growth.

So, we need to keep in context what “return to pre-pandemic” levels really means.

According to a recent survey of economists by Bloomberg, there are no expectations for Europe to return to the economic activity of “pre-pandemic levels” until at least the end of this year.

How much longer can this last?

Europe has been relatively slow in the context of developed countries. It has been the last of the major economies to approve the latest vaccines.

Distribution has lagged, and so has administration.

While the US has managed over 7M inoculations, the EU has managed only 3.3M by the same date (last Monday).

Comparatively, the UK was the first country to authorize the vaccines and has managed an inoculation rate of 4.2% of the population by last Monday. Meanwhile, the EU lags at 0.7%.

Germany is above average at 0.8% of its population having received the vaccine.

Early this morning, German Health Minister Spahn confirmed that Germany was headed for another 10 weeks of lockdowns.

Given the recent economic dynamics, that would virtually guarantee another quarter of economic contraction.

By Orbex

Weekly Fundamental Bulletin: ECB Minutes & US Retail Sales

By Orbex

Last week’s highlights

US manufacturing rises

Manufacturing activity in the United States rose to a two and half year high in December.

Official data from the ISM institute showed that the manufacturing gauge rose to 60.7 during the month. It comes on top of November’s increase to 57.5, making the December data the highest since August 2018.

The increase came on a rebound on supplier deliveries which rose from 61.7 in November to 67.6 in December. New orders sub-index rose to 67.9 in December, up from 65.1 previously.

German factory orders rebound in November

Factory orders from Germany posted an unexpected rebound in November.

Demand rose by 2.3% in November compared to estimates of a 0.5% decline. The factory orders were more than 6% above the pre-crisis level, according to official data.

The increase marks a 7th consecutive increase in factory orders. The data comes as Germany extended its lockdown restrictions through the end of January.

Investors brush aside FOMC meeting minutes

The US Federal Reserve released its meeting minutes from the December monetary policy meeting.

There was nothing new for the markets which broadly dismissed the minutes. However, the minutes showed that the new forward guidance was qualitative, which undermines the current scenario of chasing the inflation target and unemployment rate.

The minutes also showed that policymakers discussed the tapering process. But, given the 2013 – 2014 taper tantrum, no further details were discussed at the meeting.

The minutes underlined the fact that the Fed is likely to maintain the status quo.

Payrolls post the first decline since April 2020

The monthly US nonfarm payrolls report released on Friday saw the labor market losing jobs for the first time in 8 months.

The data reflects the drop in hiring in the hospitality sector amid renewed restrictions.

Nonfarm payrolls fell by 140,000 from the previous month, according to official data. The unemployment rate, however, bucked the trend, holding steady at 6.7%.

The unchanged unemployment rate puts an end to 7 consecutive monthly declines.

Despite the lower than forecast jobs data, the markets continued to be spurred on by hopes of new stimulus under the Biden administration.

US services sector activity unexpectedly rises in December 2020

The US services sector activity posted a surprise increase in December, marking a faster pace of expansion.

Official data from the Institute for Supply Management showed that the services PMI rose to 57.2 in December. This comes following a headline print of 55.9 in the previous month.

The median forecasts pointed to a decline in the index to 54.6. The services sector composite index grew for the seventh consecutive month following a decline in April and May.

The gains in the services sector come following an uptick in the increase in the business activity index which rose to 59.4 in December from 58.0 in November.

Upcoming Economic Events

China exports set to rise, albeit at a slower pace

The week ahead will kick off with data from China covering exports and inflation.

On the exports front, data is likely to show that the recovery continued into the year-end. Another double-digit growth is forecast in exports.

Following an increase of 21.1% previously, export data for December is set to rise by 13%. Meanwhile, inflation is also likely to improve.

After falling 0.5% on the year in November 2020, headline consumer prices are forecast to decline by just 0.1%, marking a modest improvement from the previous month.

Similar trends are expected in the producer prices index as well. PPI is forecast to fall by 0.8% following a 1.5% decline on the year in November.

ECB to release the December monetary policy meeting

The European Central Bank will be releasing its meeting minutes from the December monetary policy meeting.

The central bank announced an increase in its bond purchases in December. However, investors will be keen to see the deliberations.

It is already well known that the ECB included a caveat that not all of its targeted 500 billion euros would be used for purchasing bonds.

Instead, the ECB was forced to note that it may not use the entire amount in a bid to secure the backing of the hawks in the ECB governing council.

The December meeting already showed ample disagreements among members, which could be highlighted in the meeting minutes.

US retail sales likely fell in December 2020

The monthly retail sales report is due out this week on Friday.

According to the median estimates, it is quite likely that retail sales fell during the month. This marks a 3rd consecutive decline in retail sales.

The declines are attributed to the surge in the Covid-19 cases amid renewed restrictions. Headline retail sales are forecast to fall by 0.1% following a 1.1% decline previously.

Economists expect the retail sales excluding auto and gas to fall by 0.4% after a 0.8% decline in the previous month.

Consumer prices in the US set to rise in December 2020

Consumer price index data from the United States is due out this week.

Forecasts show that headline inflation rose by 1.3% on the year in December. This marks a slight increase from 1.2% previously.

On the other hand, economists forecast that core CPI prices, which exclude food and energy, will remain steady at 1.6%. This will see the same pace of increase in core CPI as in November on an annual basis.

UK monthly GDP to contract in November

Economic activity in the UK is heading for another contraction in November.

The declines come after a fragile recovery in the previous month. The median estimates point to a 4.6% decline on a monthly basis for November.

The drop comes after a 0.4% increase in the previous month. It also coincides with the UK entering into a partial lockdown.

Looking ahead, the nation entered into a stricter lockdown since January. This is will result in a deeper impact on the economy in the coming months.

Due to the anticipated contraction in economic growth, the fourth-quarter GDP could also come out lower.

By Orbex

Key market events this week

By Han Tan, Market Analyst, ForexTime

Only the second full trading week of the year, and there’s plenty to keep markets on their toes.

Besides the world’s struggles with the Covid-19 pandemic that blanket market sentiment, here are some key events to look out for over the coming days:

  • Monday, 11 January: Key Fed officials may offer clues on asset purchasing pullback this week
  • Wednesday, 13 January: Democrat-controlled House may vote to impeach Trump, again
  • Thursday, 14 January: Biden unveils stimulus plans, Fed chair Powell speech
  • Friday, 15 January: JPMorgan kicks off US earnings season

 

Monday, 11 January

Given the forward-looking nature of the markets, investors have begun pondering when might the Federal Reserve begin easing up on their asset purchasing programme, which has been a major supportive element for financial markets since the pandemic. Starting Monday, various key Fed officials are scheduled to offer their respective economic outlooks over the coming days, culminating in Fed chair Jerome Powell’s webinar appearance on Thursday.

Considering that 10-year US Treasury yields are already at their highest levels since March, the mere hint of a pullback in the Fed’s asset purchasing programme could trigger another yields spike, which could come at the expense of the non-yielding Gold.

 

Wednesday, 13 January

With the chaotic scenes from last week’s Capitol breach still fresh in the world’s mind, Democrats are moving to impeach outgoing US President Donald Trump. That is, unless Vice President Mike Pence and the cabinet remove Trump first by invoking the 25th amendment, which appears unlikely.

While this could be mere political drama which markets are more than willing to ignore, it still presents a risk that prudent investors must continually monitor.

 

Thursday, 14 January

The reflation trade could be given fresh legs when President-elect Joe Biden outlines plans for “trillions of dollars” in added US fiscal stimulus. This would be a much-needed boost, especially in light of last Friday’s surprise contraction of 140,000 jobs in the December US non-farm payrolls report.

It remains to be seen which sectors would benefit the most, but Gold prices could see a pickup on heightened expectations for stimulus-fueled inflationary pressures, while US stocks may well ride higher on such optimism.

 

Friday, 15 January

The US earnings season will kick off with JPMorgan leading the way once more. Banking stocks are back in vogue, as investors anticipate more fiscal stimulus as well as an extended ultra-accommodative policy stance by the Fed. The S&P 500 Financials Index has already gained 4.65 percent so far in 2021, making it the third best-performing sector on the benchmark index, behind Materials (+5.68%) and Energy (+9.31%).

Although the Q4 financial results that will be released over the coming weeks are backward-looking in nature, investors would be paying more attention to the business outlooks for these companies. Commentaries that harbour a more positive performance in the year ahead could spell more upside for share prices.

 

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

What A Democratic Sweep Of Congress Means For The Markets

By Orbex

The media attention has focused on the drama in the US Capitol over the last couple of days. As a result, the more relevant event for the markets has gone a little bit under the radar.

After securing the Presidency, Democrats have taken control of the Legislature by the narrowest of margins. And the markets have already started to react.

But there are implications for how currencies and stocks will behave going forward.

The latest developments include a series of speeches by Fed officials that underscore the market relevance of the political change in Washington.

Bostic was perhaps the most dramatic. He said that the Fed might raise rates sooner than expected. The consensus among the market has been for some revision to Fed policy in 2023.

So, “sooner” would presumably be next year.

Mester and Daily also commented on their outlook. They suggested that they saw a better than anticipated recovery in the second half of the year.

Although not specifically addressing the issue of rates, they did not affirm the prior standing line that rates would stay low until needed.

Higher interest rates, so why higher stock market?

Yesterday, President-Elect Biden repeated his pre-election initiative for a third stimulus package.

He said he was looking for as much as $3.0T in new spending. This would already include the balance of the $2,000 stimulus checks.

So far, there hasn’t been any official announcement of what would be in the “tax and infrastructure” package. But the total is above what most analysts had anticipated.

Increased spending has obstacles, however.

The Democrats have a very slim majority. And legally, they would need a majority of 60 Senators to approve any increase in spending.

Democrats only have 50.

What could hit the markets potentially is if Republicans dig in their heels to oppose a spending increase, and Democrats then move to get rid of the 60 majority requirement.

Moderate Democrats have assured they wouldn’t vote for such a measure. However, nothing is set in stone in politics. Most analysts think it’s very unlikely, but it’s something traders ought to be aware of after Jan 20th.

Republicans are likely to support some manner of stimulus spending, and it’s possible that in reality, both sides will compromise on a lower amount.

Despite Biden’s announcement, most analysts still see between $700-800B in stimulus spending. This is aside from the $464B implied from the addition of the stimulus check top-up.

Can taxes go up?

Democrats don’t have a majority sufficient to increase government spending. That said, it is possible for their majority to pass tax modifications through a process called “budget reconciliation”.

Trump’s tax cuts were passed through this mechanism. So, Biden tax hikes can also pass in the same manner. Analysts are looking at potential increases in:

  • the top marginal tax rate to 39.5% (return to 2016 levels),
  • capital gains tax,
  • “green” taxes.

As for individual stocks, following the events on Capitol Hill, Biden is reportedly under increasing pressure to push for regulation of social media companies.

On the one hand, some analysts believe that government guidelines for social media would help the firms avoid controversies and further advertising boycotts. (The “Adpocalypse 3.0”, as it has been called in reference to the 2017 move by advertisers against YouTube content policies.)

On the other hand, there are other members of the Democrat caucus that are pushing for breaking up major social media companies, particularly targeting Facebook.

Democrats don’t have a “supermajority” in Congress that would allow them to pass legislation unimpeded.

They are in a much better bargaining position with a marginal majority. However, most major legislation requires more of a majority than they have.

It allows for faster confirmation of the Cabinet, officials, judges, and other administrative and regulatory activity. But likely, major legislation will be as slow as always.

By Orbex