FX

Volatility is back

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Good morning, having been a relatively quiet start to the new year volatility returned to the markets with a vengeance last week as small traders took on the wall street monoliths in the stock market.

As the equity markets gyrated so did investor’s risk assessments and the dollar’s attraction waxed and waned. Regardless of whether it is American stock markets causing the change in sentiment, the dollar reacts almost simultaneously. As Asian bourses (stock exchange) open stronger this morning so do the beta currencies, such as sterling which has opened at $1.3725 against the dollar. World geopolitical tensions are also rising with Taiwan being threatened by China and new restrictions in Hong Kong. Europe’s attitude towards vaccines in administering them and the distribution is another worry for the market, and the euro looks set to suffer some more.

A busy and jumpy week is in prospect with initially the same data narratives looking likely to dominate trader’s thoughts. The pandemic’s containment and vaccine distribution will still be uppermost in determining the direction of currencies, and the pound seems the most likely to benefit. Any further delay in distributing vaccines will add to the markets’ generally gloomy mood as their success is linked directly to economic recovery. We have a data-heavy week ahead in both Europe and the US. We will be watching to see if European data continues to be generally downbeat this week, unlike the US, which was mostly upbeat with GDP beating expectations last week.  The markets will also be watching for hints from the Bank of England on policy and to see if any progress can be made on the US’s fiscal stimulus bill. And of course, whether the retail trader phenomenon continues and the authorities’ responses to it.

UK

Last week, the pound put in a good performance holding up well against the resurgent dollar and gaining against the euro. Slightly better than expected employment data gave the pound a boost as did the vaccination programme’s continuing success, which has seen over 12% of the population inoculated. Sterling is also benefitting from what appears to be, at least in the short term, a relatively painless departure from the EU. It has opened at €1.1320 against the euro as the market awaits to see how Wall Street moves this afternoon. The critical event we will be watching out for this week is the monthly Bank of England meeting on Thursday. No change is expected on its monetary policy, but its review of negative interest rates will be watched for any hints that they could be enacted. The BoE Governor is also set to speak on Friday afternoon. Away from the Old Lady, a quiet week on the data docket is in prospect apart from the Markit Manufacturing Purchasing Managers Index which is released this morning.

Euro

The political backdrop in Europe looks likely to continue to worry the markets as disquiet is increasingly being manifested at both lockdowns and the slow rate of vaccinations, culminating in the spat between the commission and the drug manufacturers. Investors now fear that these feelings will manifest themselves at the ballot box when countries including the Netherlands, Germany, and France, have upcoming elections causing upheaval in the current political establishment.  A hectic week ahead for data in the Eurozone with Gross Domestic Product for the fourth quarter released tomorrow. Individual country estimates indicate that the second wave hasn’t impacted as negatively as the first. Later this morning the latest unemployment figure for the eurozone are released. On Wednesday, January’s inflation reading is released where an uptick is expected and Thursday the latest Retail Sales.

US

Another challenging week looks to be in prospect for Joe Biden. Global stock markets are possibly set to move wildly again as day traders in the US battle with hedge funds. As this happens, risk sentiment will swing around taking the dollar with it, and beta currencies such as sterling will follow. Several speakers from the Fed are scheduled this week, and investors will be listening for any response they show to the markets’ extraordinary conditions. The new administration is still trying to drive its $1.9tn stimulus plan into law, and it now looks like Joe Biden will be forced to split the package into separate bills. Also clouding the water is the impeachment trial of Donald Trump on 8th February. The eyes and ears of the financial markets will turn to the States in the early afternoon on Friday when January’s employment, Nonfarm Payroll, data is released on Friday. These will be preceded as usual by the ADP white-collar employment data on Wednesday and the weekly jobless claims on Thursday.

Scandi

January proved to be relatively uneventful and the Swedish krona was rangebound throughout most of it. This, despite rumours in the financial press that the schedule for repayment of foreign exchange loans announced by the Riksbank as the krona was strengthening, was done to manipulate it lower. February kicks off this morning with the Swedbank Manufacturing PMI, and we will also get a flash GDP reading. Later in the week, we will get a reality check on the Swedish housing market on Tuesday and on Friday the Budget Balance is published.
The Norwegian krone ended the month on average lower against most G10 currencies even though Norges Bank Governor Olsen once again warned the market that a rate hike may come much sooner than anticipated. This week starts with the DNB PMI Manufacturing Survey followed on Friday by the Industrial Production figure.
In Denmark Sunday was spent celebrating the 26 – 24 wins against Sweden in the final of the World Men’s Handball Championships. Welcome news for a nation battling an impeachment case and still reeling from the decision that killed Europe’s largest fur export industry in less than a week. We will monitor any decisions concerning the compensation due to the mink farmers and any further political drama that may unfold due to the aforementioned.

Vaccinations and viruses set to dominate

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Good Morning, after the fears of violent disruption to President Biden’s inauguration proved to be unfounded, the market has returned its attention to COVID-19 and the proposed stimulus package.

Sterling has so far been a beneficiary from the success of the vaccination programme’s roll-out, which is now seeing nearly 500,00 inoculated daily.

However, after Boris Johnson warned of the new strain’s virulence, the pound may start to ease back. Currency traders will be watching out for more information on this as they will the vaccination rate. The perceived wisdom is that countries that vaccinate the quickest will see their economies recover fastest. In this respect, the UK is striding ahead of the US and Europe, having vaccinated over 10% of the population.

In the week ahead we will be watching to see if Joe Biden can circumvent any filibustering attempts by the Republican party in the Senate to stall his $1.9trn stimulus package. For the man on the street, the aid is desperately needed, and if Joe Biden fails to get enough bipartisan support, the recent rise in the dollar could stall. The disappointing December Retail Sales released last Friday raised questions about the UK economy’s ability to bounce back. This week, we will get further clues about it when the latest unemployment figures are released. We will also be watching political developments in Europe, particularly Italy. The other events of note will be the “virtual Davos” meeting where we will hear most of the world’s leaders opening on COVID-19 and midweek the monthly Federal Reserve meeting, and press conference will take place.

UK

Sterling has opened strongly this morning, above $1.3700 following on from last week’s solid performance. Vaccinations are continuing apace, and as yet few problems seem to be surfacing because of Brexit. Late last Friday afternoon, the prime minister did sound a warning shot about the dangers of new variants of the virus, which may lead to a longer lockdown than anticipated. The market is now putting more emphasis on the rate of vaccinations than backwards-looking data, which is just as well after Friday’s disappointing Purchasing Managers Index (PMI) and Retail sales figures indicated that a double-dip recession is now likely. Countering this was the good news of a reduced risk of negative interest rates and a surprising uptick in inflation. In the coming week, we will be watching for the Unemployment figures tomorrow which are expected to have climbed again to above 5% despite the furlough scheme’s extension.

Euro

The euro has seemingly been defying gravity recently and has opened at $1.2150 against the dollar; however against sterling it is more restrained at €1.1250. Political problems will continue to concern investors in the single currency, with Italy’s future leadership still hanging in the balance. Inadvertently, the European Central Bank gave the single currency a nudge up with a technical adjustment to its Pandemic Emergency Purchase Programme (PEPP), which was taken as a hawkish move by market observers. There are plenty of speakers to occupy the market this week with the ECB’s Christine Lagarde starting the week on Monday and its chief economist Phillip Lane speaking on Wednesday. Emmanuel Macron and Angela Merkel will also get their opportunities to pass comment at the virtual Davos meeting. A full data docket awaits us as well, with Germany’s IFO Business Climate report first out this morning. Then we wait until Thursday for the next meaningful figures: the Eurozone Industrial and Consumer confidence readings as well as a snapshot of Germany’s inflation data. The week closes out with German GDP for the last quarter and its most recent unemployment data.

US

The celebratory parties are well and truly over for Joe Biden, and it’s down to work this week in his efforts to unite the country and control the second wave of COVID-19. Despite the Democrats’ best efforts, the Stimulus Relief bill is stalling and as it does the dollar is stuttering. The markets will be watching to see if instead of one sizeable all-encompassing bill, he decides to get relief packages passed in piecemeal stages. As elsewhere, the vaccination rate will be studied, as will the take-up level, as economists try and read the economic recovery pace. We also have a busy data docket to look forward to starting with Consumer Confidence tomorrow. Durable Goods orders follow this on Wednesday, and the Federal Reserve holds its first meeting of the Biden era on Wednesday followed by Jerome Powell’s press conference. It is expected he will increase pressure for more stimulus and reassure the markets of the Fed’s willingness to act. Thursday sees preliminary 4th quarter GDP and Jobless claims, and we close out the week with Personal Income and Consumption data.

Scandi

The Swedish krona was rangebound last week in what was a tranquil week despite comments from Riksbank official Jansson saying that interest rates can drop down to negative in the future. The muted response from the market is being viewed as positive, and the recent bull run may continue. The border between Norway and Sweden was shut on Sunday by Swedish authorities as the increasing number of mutated viruses started escalating in bordering Norwegian towns. This week we will keep a close eye the inflation figure out on Tuesday and the trade balance on Wednesday. The official unemployment figure for December is out on Thursday together with the Christmas retail sales. Swedish retail consumption is expected to have decreased by 1% compared to a year ago.
The Norges Bank kept its interest rate unchanged but once again cautioned the market that it may be positioned too short. Speculation in the financial press is now rife that Norway will be the first G10 currency country to raise interest rates. The mutated virus is now spreading in Norway and Oslo has gone into a full lockdown, again. This week we pay extra attention to the unemployment rate, which is out on Friday. It is expected to have increased to 4.3% from 3.8%.

 

The world focuses on Washington

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Good Morning, one event above all else will dominate the headlines this week, the inauguration of the 46th President of the United States, Joseph Robinette Biden Jnr.

With large numbers of the National Guard deployed in possibly the tightest security ever witnessed for the event, we hope that the authority’s precautions deter the feared violent protests.

Last week we got a glimpse of his plans for a substantial stimulus totalling nearly $2tln. How quickly the new President can pass this will be down to how accommodating the defeated Republicans chose to be. Whilst pleasing the markets initially, the proposed package’s size will necessitate an increase in treasury bond issuance to fund the plans. Treasury yields have started to reflect this fact and have been increasing recently. The risk-off sentiment is beginning to grow, and as it does so will the attraction of safe havens such as the dollar.

Politics are also starting to influence the euro’s direction with the continent looking suddenly less stable. Italy’s coalition conflict is now looking likely to end with a confidence vote in Prime Minister Giuseppe Conte, Mark Rutte’s government in The Netherlands has resigned and further North in Denmark an impeachment trial is likely. In Germany, the Christian Democratic Union party has chosen a successor to Angela Merkel, and Armin Laschet will now lead the party to the General Election in September. When combined, these individual factors are starting to spread a little uncertainty about the bloc’s unity.  Vying for headline space will be the continued advance of COVID-19 and the introduction of stricter lockdown measures, particularly in France, Italy and Germany and the slowness of the vaccination programme in Europe.

UK

Sterling was the best performing G10 currency last week, not something that occurs too often. It has opened this morning easier against the dollar at $1.3570, but it is still trading strongly against the euro at €1.1235. For once, the UK looks relatively stable politically, and its vaccination rollout programme’s efficiency is helping sterling find buyers. The pound was also supported by Andrew Bailey, Governor of the Bank of England, all but dismissing the prospect of sub-zero interest rates despite his deputy  Tenreyro arguing that they were possible. In the coming week, we will get to see a snapshot of inflationary pressure, if any, when the Consumer Price Index is released on Wednesday. We will see how the consumer acted over the Christmas period when December’s Retail Sales are issued on Friday. Also, on Friday, Markit will release its preliminary figures for the Purchasing Manager’s Index. BoE Governor Andrew Bailey is giving a speech later today, and his Chief Economist Andy Haldane is speaking tomorrow.

US

Away from the pomp and ceremony of Wednesday’s inauguration more mundane problems will be occupying the financial markets this week. After a week of disappointing data that culminated with December’s Retail Sales dropping by more than expected and containing downward revisions for previous months, sentiment has become more risk-averse. The dollar may find buyers as a safe haven if Iran continues to test the new President’s resolve. Its a Bank Holiday in the US  today celebrating  Martin Luther King’s Birthday. This week’s critical data will again be the weekly jobless claims on Thursday, and we will also be watching out for the release of US housing data during the week.

Euro

Some political instability is creeping into Europe; consequently, the euro has been slipping and is now trading at 1.2075. Also encouraging selling pressure were the minutes from the previous ECB meeting in December, which highlighted concerns about a strong euro and its effect on inflation. The week ahead is a busy one for data and more importantly meetings. We start the week with Germany’s Consumer Price Index tomorrow and the ZEW Economic sentiment surveys. On Wednesday, the European Consumer Price Index is released as is the German Producer Price Index. The week closes out with the Markit Purchasing Managers Indices for the European constituent countries and the zone as an entity. It is also a big week politically starting today with the Eurogroup meeting. The European Central Bank meets on Thursday after which its President Christine Lagarde will give a press conference. There is also plenty to anticipate from the EU Leaders summit meeting on Wednesday when it is expected they will focus on the speeding up the vaccination roll out and implementing the recovery fund.

Scandi

The Swedish Krona’s latest bull run has not escaped the hawkish eyes of Riksbank Governor Ingves. The Swedish Krona, which until recently has been on the long and winding road back to levels last seen in 2018 weakened spectacularly after the Riksbank suddenly announced that it intends to pay back foreign loans on behalf of the Swedish Debt Office over the next two years. They will do this by selling SEK 185bn and buying foreign reserves. The financial press immediately speculated about Central Bank fx intervention, but the Riksbank later denied that. Whilst it is impossible to know for sure what is going on behind that locked door of the Riksbank, the market’s verdict spoke for itself, and it appears as if the Riksbank will have to do some more convincing. This week contains no major data releases, and we will closely monitor the movements from a more technical perspective rather than macro.

The Norwegian Krone had a quiet, rangebound week against most G10 currencies, this week’s focus will be the Deposit Rate announcement from Norges Bank. Governor Olsen is not expected to do something drastic this early on in the year. We will follow the press conference closely on Thursday as he has warned and hinted previously that the market perhaps is not taking the possibility of a rate hike before 2022 into consideration.
Although it is not something the market expects will impact the DKKEUR peg, Denmark has its first impeachment trial in almost three decades which may have wider political implications for the country.

The can is kicked down the road again

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Good morning, Last week volatility increased sharply in sterling related markets as once again Brexit dominated the headlines and airwaves. With this weekend’s talks spilling over into this week, a renewed sense of optimism returned. Sterling has bounced strongly off its lows as a no-deal outcome seemingly has receded slightly.

After a week where a no-deal loomed, we now have another two possible outcomes, either a deal at the death or a possible extension beyond the 31st December. With so many imponderables and personalities at play, the rumour mill will no doubt be working over-time. Sterling will remain highly volatile, and thin markets will heighten it as we enter into the Christmas period.

Away from Brexit, our focus will be on Central banks over the next few days. Last week the ECB increased the length of its monetary accommodation into the first half of 2022. By doing this, they are hoping that their policies can act as a bridge till vaccines have restored some sense of normality to the Eurozone economies. This coming Wednesday, we will get to see how the Federal Reserve is planning to react to the rising tide of both COVID-19 and unemployment in the United States. On Thursday it will be the Bank of England’s last chance to change policy before the year-end.

UK

After the weekend’s talks seemingly ended in a score draw, we enter the last full week of trading still unsure of the trade negotiation outcome. After a weekend where sterling moved by over 1% back to £1.3325 and thin trading in prospect, we again expect to see highly volatile markets. Away from Brexit, we have quite a busy data docket. The latest Unemployment data will be released tomorrow, Inflation figures for November on Wednesday and Retail Sales on Friday. The most important event will be on Thursday when the Bank of England will hold its last regular policy meeting of the year. This meeting falls just a fortnight ahead of the year-end when we could still find the UK ending its transition out of the European Union without a future trade deal.  The BoE is likely to leave both rates and QE (Quantitative Easing policies) as they are this month. Governor Andrew Bailey has hinted at a move to negative interest rates, but this is unlikely. If the BoE decides to move rates into negative territory sterling would decline sharply.

Euro

The euro is of course affected by the Brexit uncertainty every bit as much as sterling and has opened this morning at €1.2125. Over the weekend Germany announced a hard lockdown over the Christmas period and this may cap and advance by the euro. Derivative traders are also taking a negative view of the currency as the premium for puts (the right to sell euros) has been increasing. The derivative moves may be traders buying protection for year-end as demand for dollars increases. Away from waiting on Brexit headlines, we will be watching October Industrial Production today and then the first look at the December PMIs for the Eurozone, on Wednesday. The recent lockdowns have hurt the service sector more than most and analysts aren’t expecting too strong a rebound.

US

After last week’s weaker US payrolls number there does, at last, appear to have been progress with the discussions over a new $916bn stimulus package. Whilst these negotiations drag on there is at least the good news that a vaccination program is starting across the United States. With 2021 rapidly approaching there is potential for disruptions to the market caused by year-end rebalancing. With US stock markets having risen sharply, there could well be a demand for dollars as banks need to balance their books. Away from the repercussions of Brexit, we will be watching out for the Federal Open Market Committee meeting on Wednesday. A dovish message is expected from this meeting but with no great changes to its policy. On the US data docket, we will be keeping an eye on November Industrial Production on Tuesday, Retail Sales on Wednesday and Thursday will see the weekly release of unemployment data.

Scandi

The Swedish Krona had another volatile week against most G10 currencies. This was mainly caused by Riksbank comments about the possibility of negative interest rates in the future should they be deemed needed. It remains the best performing currency of this year within that group, and the macro data from last week was encouraging too. Inflation remains stubbornly low, but the Riksbank does not seem too worried as it tries to put out other more urgent fires. This week is relatively thin from a data perspective with the unemployment rate being the only important set of data out on Thursday. Loyal readers of our report are fully aware that December is normally SEK positive, and data compiled demonstrates that SEK has strengthened on average 1.1% between 11-Dec and 31-Dec since 2009. In other words, we have entered what should be a SEK bullish period.

Over in Norway, it looks as if the Norwegian Krone is going to claim the opposite title and be crowned the worst performing G10 currency of the year. Apart from oil, Norway’s economy is mainly driven by its high-end fishing produce. With lockdowns and restaurant closures, the industry has suffered throughout 2020. Despite that, the market is not looking for the Norges Bank to deliver any surprises on Thursday when the Deposit rate is set. It is expected to stay at 0.00%. We will also closely monitor the unemployment rate, which is out the day after.

ROW

The aussie dollar looks set to continue benefitting from the recent rise in Iron Ore prices as well as the weaker dollar, but like all beta currencies, it may suffer from the fallout from Brexit as well as its ongoing spat with China with the Australian wine industry now targeted. We will be watching its close neighbour, the kiwi when third-quarter growth data is released this week where the consensus is for a strong rebound. Their cousin, the Canadian dollar, should continue to benefit from a global rebound as Oil recovers and their inflation figures are released on Wednesday. The Swiss franc could see some volatility as the ramifications of any new Brexit negotiations are felt. The Swiss National Bank will as always will be watching from the sidelines and will not be afraid to intervene to maintain an orderly market.

Autumn storms ahead

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Good Morning, as the world’s markets waited all last week for the release of the Non-Farm payrolls data only for more serious news to partly side-line the event with the announcement that President Trump and his wife Melania had tested positive for COVID-19.

The markets knee jerk reaction was a flight to safety which benefitted the dollar, yen and to a lesser extent the euro.

The health of the President and its effect on the forthcoming election, now under 30 days away, will certainly dominate the headlines and the markets over the next week and for some time after. The markets will also remain fretful that other members of his administration could fall victim to the virus, especially Vice-President Mike Pence.

When the employment numbers were released and digested, they were somewhat underwhelming and served to underline that the recovery in the US is stalling and the need for a fiscal stimulus package to be delivered sooner rather than later. Unfortunately, the combination of the President’s illness and the forthcoming election makes the agreement of a stimulus package further away than ever. Looking ahead to Thursday the markets will focus on increased interest on the Vice-Presidential debates. The market is likely to continue to be volatile and with China on holiday all week, volumes will be thinner which in turn will exaggerate moves. Closer to home it will continue to be all about Brexit. After Boris Johnson’s Saturday call with Ursula von der Leyen, they both said that significant differences still exist and that both sides need to intensify efforts to find solutions. As the Brexit clock ticks ever louder the efforts of both sides to find a solution will dominate domestic news.

UK

Sterling had a good week making gains over the dollar to close above $1.2900 and on the euro where it settled €1.1000. So far sterling has stayed immune to the recent outbreaks of COVID-19 and traders’ attention has instead been concentrated on the chances of a Brexit trade deal. The coming week will be dominated by Brexit and after Saturday’s call between the leaders yielded little movement sellers may reappear.  Also as a beta currency sterling is vulnerable to the buffeting caused by changes in risk assessment.  The data docket looks a little bare in the week ahead with only August’s Gross Domestic Product and Manufacturing production being released on Friday.

Euro

With COVID-19 infections creeping up, the lack of agreement on the recovery fund is starting to concern traders and will continue to do so unless these concerns are addressed. However, these worries were side-lined as the euro benefitted from its safe-haven status as a risk-off mood returned to the markets and with President Trump in hospital this is set to continue. Retail sales are released later this morning and after these figures the economic calendar is light but there is a European Finance ministers meeting on Tuesday and a selection of speakers from the ECB during the week including Christine Lagarde twice on Wednesday. The drop in inflation may be starting to worry the ECB and the release of the minutes of their early September meeting may give a clue to how they are thinking about further stimulus.

US

The focus, of course, will be on the President’s health in the coming week and the shifts in risk sentiment associated with it. There was a rise in the Vix index last week, often known as the fear index, and the market was already bracing itself for heightened volatility ahead of the announcement of Donald Trump’s illness.  After the disappointment of the jobs report last Friday the market will turn its attention back to Fed this week with Fed Chairman Jerome Powell delivering a speech on Tuesday and the release of September’s FOMC meeting notes on Wednesday. Very little else of any importance is released apart from ISM services data today and the weekly employment figures on Thursday.

Scandi

Last week it was confirmed what many had feared: Swedes spent and shopped less which meant that retail sales contracted by 0.3% on a month-by-month basis. However, there was some light seen at the end of the tunnel when PMI Manufacturing data which came in showing that manufacturing activity had expanded. The krona remains rangebound and still cannot return to the levels it traded at during the summer against all major crosses. This week we are watching the industrial orders, the budget balance, and Swedish Housing Price Data. Any further mention of lockdowns will naturally grab our and the market’s attention. The Norwegian krone is still under pressure and this week the market will be watching out for the GDP figure and the latest inflation figures released on Friday which are expected to be well above most other major economies at 2%.

ROW
The Reserve Bank of Australia meets this week and more dovish rhetoric is expected, but this is likely to pale into insignificance when seen in the light of the likely shifts in global risk sentiment. Its near-neighbour the kiwi is also a hostage to global risk movements although it does have its own election looming on 17th October. The main beneficiary of uncertainty over both the US election and President Trump’s illness will most likely be the Japanese yen which looks set to strengthen whilst the Canadian dollar could suffer if its payroll number, released on Friday, is worse than anticipated and oil continues to weaken.

Question
What is the FOMC?
The Federal Open Market Committee (FOMC) consists of twelve members – the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. By law, the Federal Reserve conducts monetary policy to achieve its macroeconomic objectives of maximum employment and stable prices. FOMC announcements inform the world about the US Federal Reserve’s decision on interest rates and are one of the most anticipated events on the economic calendar as are the detailed minutes of the meetings which are released about two weeks after.

Have a great week,

Synergy Exchange