On Wednesday, January 20th, Joe Biden will be sworn in as the 46th President of the United States. After a controversial four years, President Trump will leave office, one way or another. Hopefully Congress can move forward with Joe Biden’s economic agenda as the coronavirus continues to plague the US and nations around the world. Many European countries continue to be on a second lockdown, and restrictions continue to mount on those that are not on lockdown. Variant strains are emerging around the world as vaccine distribution continues to be problematic. The BOC, BOJ, and ECB all meet this week. There is also an abundance of economic data to sift through this week. Earnings season begins slow, but the first of the FANNGs report on Tuesday, Netflix!
As mentioned above, Joe Biden’s Presidential inauguration will be held on Wednesday. Although this will be more ceremonious than market moving, Biden’s policies will shape the direction of the United States for the next 4 years. Click here the Implications of Joe Biden’s Presidency in our 2021 Outlook. Although the House has impeached President Trump for the second time, he is unlikely to be impeached by the Senate before Wednesday’s inauguration. As Trump and his policies begin to fade, focus immediately turns to Joe Biden’s plans for economic stimulus and vaccine distribution. Last week, Biden unveiled a $1.9 trillion stimulus plan, which will give $1,400 in direct aid to individuals, aid to schools, and aid to local communities to help with vaccine distribution. It should be easier for Biden to pass his stimulus package than it was for Trump, as he will enjoy a majority of both the House of Representatives and the Senate during at least his first 2 years in office. Keep in mind that once a stimulus bill is passed, taxes are next on the agenda. Forward looking markets will soon begin pondering “What’s next?” after the stimulus.
The coronavirus is still haunting countries around the world. On Friday, according on John’s Hopkins University, the world surpassed the grim milestone of 2 million deaths due to the coronavirus. The US has reached 4,000 deaths per day. The UK remains in lockdown until mid-February and will close all travel corridors as of Monday. Portugal has entered lockdown. Spain has surpassed 39,000 cases in a single day, a new high. Germany may lockdown again this week as Merkel said she wants “very fast action” to curb the spread. France has set early curfews. Japan has extended its State of Emergency beyond Tokyo, to 7 additional Prefectures. The list goes on.
There are 2 apparent reasons that the virus continues to spread. One reason is the variants which are showing up in countries around the world. The initial variant, from the UK, is said to be more contagious, yet less lethal. This variant is forecasted to be the dominant virus in the US by March, according to the CDC. Variants in other countries appear to be similar, popping up in South Africa and Brazil, among others. It is yet to be determined if current vaccines work against the new variants. The second reason is due to the slow distribution of vaccines. Many countries are having issues getting the vaccine to the most vulnerable people first. To make matters worse, on Friday Pfizer announced that it will temporarily reduce deliveries to Europe while it upgrades it production capacity. This will only add pain to European counties in the short-term.
Traders have been using fiscal and monetary stimulus to add to the “risk-on” move. Central bankers have said repeatedly that they have the tools in their toolbox to add to stimulus if necessary. But what will happen after stimulus? Are we nearing a point, where traders will begin to look past the stimulus towards tapering? US Fed officials this week have suggested that they may begin tapering by the end of the year (however Powell said the Fed will not raise rates until inflation is above 2% for some time). Will the US Dollar and treasury yields rise? Will stocks move lower? Traders will begin looking for answers to these questions this week as the BOC, BOJ and ECB meet. Of the three, the Bank of Canada is most likely to begin tapering first. Canada’s economic data has held up relatively better than most countries. On Thursday, Christine Lagarde said the EU is likely to meet its GDP target for 2021 of 3.9%, provided lockdowns are lifted and vaccine rollouts get better. It will be interesting to see of her fellow Board Members feel the same. As far as BOJ watch, traders will be watching to see if, and by how much, they downgrade their assessment of the economy.
Earnings reports are going to be coming in fast and furious over the next few weeks. Traders will be interested to see how the coronavirus, restrictions, and lockdowns affected company’s bottom lines. However, more importantly, traders will be watching their guidance. When are the “stay at home” companies looking for profits to turn lower? This week, there are a few earnings to keep an eye on, including the first of the FAANG stocks, Netflix! Other notables are as follows: SCHW, BAC, HAL, NFLX,GS, AA, UAL, MS, INTC
In addition to central bank meetings and earnings reports, there is a plethora of economic data due out this week. A data dump from China is due on Monday, while it is US is on holiday. In addition, on Tuesday the UK will report Retail Sales, on Thursday Australia will report jobs data, and on Friday we’ll get our first look at global manufacturing and services PMI data for January. Other important economic data is as follows:
- Japan: Tankan Index (JAN)
- China: GDP Growth Rate (Q4)
- China: Industrial Production (DEC)
- China: Retail Sales (DEC)
- China: Unemployment Rate (DEC)
- Canada: Housing Starts (DEC)
- Australia: New Home Sales (DEC)
- Germany: Inflation Rate (DEC)
- Germany: ZEW Economic Sentiment Index (JAN)
- Canada: Manufacturing Sales (NOV)
- Germany: PPI (DEC)
- UK: Inflation Rate (DEC)
- UK: Retail Sales (DEC)
- UK: PPI (DEC)
- EU: Inflation Rate (DEC)
- Canada: Inflation Rate (DEC)
- Canada: BOC Interest Rate Decision
- US: NAHB Housing Market Index (JAN)
- US: Presidential Inauguration of Joe Biden
- Australia: Westpac Consumer Confidence (JAN)
- Australia: Consumer Inflation Expectations (JAN)
- Australia: Employment Change (DEC)
- Japan: Trade Balance (DEC)
- Japan: BOJ Interest Rate Decision
- Japan: BOJ Quarterly Outlook Report
- EU: ECB Interest Rate Decision
- Canada: New Housing Price Index (DEC)
- US: Building Permits (DEC)
- US: Housing Starts (DEC)
- US: Initial Jobless Claims (Week ending Jan 16)
- US: Philadelphia Fed Manufacturing Index (JAN)
- EU: Consumer Confidence Flash (JAN)
- Global: Manufacturing and Services Flash PMIs (JAN)
- Japan: Inflation Rate (DEC)
- Australia: Retail Sales Prel (DEC)
- UK: Retail Sales (DEC)
- Canada: Retail Sales (NOV)
- US: Existing Home Sales (DEC)
- US: Crude Inventories
Chart of the Week: Weekly Russell 2000 (RUT)
Source: Tradingview, FOREX.com
The Russell 2000 is a small-cap stock index made up of 2000 stocks. For comparison, the S&P 500 is a large-cap index make up of 500 companies. The NASDAQ 100 is made up of 100 large non-financial companies. What’s so great about this chart? Since the beginning of the year (in other words, over the last 2 weeks), the Russell 2000 is up nearly 7.5%. The S&P 500 is nearly unchanged on the year and the NASDAQ 100 is down over 0.5%. Is this the beginning of a rotation out of large-cap, safe stocks and into smaller, riskier stocks? Could this also be the beginning of a rotation out of “stay at home” stocks and into “go out and do things” (service and leisure) stocks. RUT is approaching the 1.618% Fibonacci extension from the highs of 2020 to the lows, near 2200. In addition, this level intersects with a rising trendline dating back to late 2016. The 2200 level will act as strong resistance. The RSI is in overbought territory; however, it is not diverging with price. In both NASDAQ 100 and S&P 500, the RSI and price are diverging, indicating they may turn first. The saying goes “a rising tide lifts all boats”. If the large-cap indices begin to sink, watch for confirmation of a rotation if the Russell 2000 can stay afloat longer!
Unlike last week, there is a lot to pay attention to this week in the markets, including more on Joe Biden’s presidential agenda, coronavirus headlines, central bank meetings, earnings, and economic data. Although some of these events may create volatility in the short-term, begin to watch for hints of changes in the larger picture!
Monday is a US holiday, Martin Luther King Jr day. For those of you celebrating, enjoy the holiday.
Have a great weekend and please remember to always wash your hands!