In a ceremonial event, Joe Biden was sworn in as President of the United States on Wednesday, and the day went off without a glitch. Immediately, he must deal with the problem that his processor couldn’t get a grip on – controlling the coronavirus and getting the vaccines distributed. Many European countries are trying to wrap their arms around the new UK variant which is spreading across nations. Lockdowns and restrictions have begun to show up in economic data, and the next few weeks will be critical for Q1. The FOMC will get its turn in the spotlight on Wednesday. With more fiscal stimulus on the way, it may be a non-event. Earnings season continues with heavy hitters Microsoft, Tesla and Apple hitting the tape. We’ll also get month end data, including the US Advanced Q4 GDP.
Over 420,000 people have died in the US alone from coronavirus related cases. That is equivalent to 1,268 deaths per 1 million people. In Europe, countries such as Belgium, Slovenia, UK, Italy, Spain, France, Sweden, and Switzerland, among others, are seeing similar death rates (worldometers.info/coronavirus). Variants have been found in the UK, South Africa, and Brazil which are said to be less lethal but more contagious. However, on Friday Boris Johnson said the UK variant may be more lethal than first anticipated. More and more countries are either being put into lockdown or having their lockdowns extended into the spring. The Summer Olympics in Tokyo, already postponed from last year, may have to be canceled. Many countries have either ordered vaccines or are already rolling them out. Joe Biden has proposed “1,000,000 vaccines a day for 100 days.” Two questions that traders will be looking for answers to this week are:
- Can the vaccine rollout be done at a fast-enough pace without prolonging negative effects of the virus on the economy?
- How effective are the vaccines against the new variant of the coronavirus?
What does all this mean for the world economy? Most likely it means continued stimulus. Although central banks were on hold last week, they confirmed that their outlook depends on the path of the virus and if lockdowns are lifted in Q1. However, the BOJ downgraded near term forecasts. Christine Lagarde of the ECB said they have many tools at their disposal still (although she didn’t commit to which ones they would use). The FOMC is likely to follow their central bank cohorts this week, leaving interest rates and QE unchanged. With newly sworn-in President Joe Biden’s $1.9 trillion stimulus plan on the floor of Congress, Powell and friends are likely to remain in “wait and see” mode. However, there is a likelihood that once the plan makes its way through Congress, it will be less than proposed (perhaps 2/3). Powell should remain upbeat, however he too will likely preference his remarks with “provided vaccines are distributed and things done get worse.”
Earnings season continues this week with some heavy hitters, including Microsoft, Apple, and Tesla. Traders will be watching forecasts. What are these companies expecting in future quarters based on the virus? Other major earnings releases this week are as follows: MMM, AXP, GE, LMT, VZ, SBUX, MSFT, TXN, JNJ, AAPL, T, BA, FB, TSLA, MA, V, CAT
Worse than expected PMI data from Japan and Europe showed that the coronavirus is beginning to take a toll on Q1 economic data. End of month economic data will be released this week. Most of it is second tier, however standouts will be UK and German employment data, as well as, the Advanced look at the US Q4 GDP. Other economic data highlights are as follows:
- Germany: Ifo Business Climate (JAN)
- UK: Claimant Count Change (DEC)
- US: CB Consumer Confidence (JAN)
- Australia: NAB Business Confidence (DEC)
- Australia: Inflation Rate (Q4)
- Germany: GfK Consumer Confidence (FEB)
- US: Durable Goods (DEC)
- US: Fed Interest Rate Decision
- Crude Inventories
- New Zealand: Trade Balance (DEC)
- Japan: Retail Sales (DEC)
- EU: Consumer Sentiment Final (JAN)
- EU: Economic Sentiment (JAN)
- Germany: Inflation Rate (JAN)
- Canada: Building Permits (DEC)
- US: Initial Jobless Claims (week ending January 23rd)
- US: GDP Growth Rate Adv (Q4)
- US: New Home Sales (DEC)
- New Zealand: Consumer Confidence (JAN)
- Japan: Unemployment Rate (DEC)
- Japan: Tokyo CPI (JAN)
- Japan: Industrial Production Prel (DEC)
- Japan: BOJ Summary of Opinions
- Australia: PPI (Q4)
- Japan: Consumer Confidence (DEC)
- UK: Nationwide Housing Prices (JAN)
- Germany: Unemployment Change (JAN)
- Canada: GDP (NOV)
- Canada: PPI Final (DEC)
- US: Personal Spending (DEC)
- US: Personal Income (DEC)
- US: PCE Price Index (DEC)
- US: Chicago PMI (JAN)
- US: Pending Home Sales (DEC)
Chart of the Week: Daily USD/CNH
On May 27th, 2020 USD/CNH tested and failed to break above its previous highs from September 2019, near 7.1988. Since then, the pair has moved lower in an orderly channel. Price formed a doubled top once the pair broke through 6.8456 and reached its target for the double top on December 3rd, near 6.5252. USD/CNH continued descending to a low of 6.4116 on January 5th. This level confluences with the bottom trendline of the downward sloping channel and the 78.6% Fibonacci retracement level from the lows of late March 2018 to the May 27th highs. The pair bounced to 6.4988 and closed above the top trendline of the downward sloping channel for the first time (see insert)! Could this be the start of a larger move higher? The first horizontal resistance level is near 6.5100. Support is back at 6.4116.
Source: Tardinview, FOREX.com
(Late in the trading session on Friday, it was reported that China is seeking a meeting with Biden’s top diplomat advisors to “ease tensions” with the US. USD/CNH may gap on Monday’s opening if there are more developments over the weekend.)
Volatility this week may come down to the outlook for the coronavirus, stimulus, and company specific guidance related to the virus. The vaccine rollout is now paramount. Watch for related headlines throughout the week!
Have a great weekend and please remember to always wash your hands!