Investors are going into the new year optimistic about an improving economic outlook overcoming the coronavirus-triggered challenges, characterized by less uncertainty.
Further, investors hoped the rollout of vaccines would ultimately lift a global economy decimated by the COVID-19 pandemic. Despite the optimism over vaccines, investors are still sounding caution over the path of the virus.
With the lag between a full vaccine rollout and a global economic recovery, investors will count on central banks to keep money cheap.
Democratic President-elect Joe Biden, who takes office next month, is expected to push for more measures to support the U.S. economy.
The UK factory PMI hit a three-year high in December. Factories rushed to complete work before the end of the post-Brexit transition period on Dec. 31.
A last-minute Brexit deal was agreed on Dec. 24, which set rules for industries such as fishing and agriculture. The deal does not cover Britain’s finance sector. However, UK market participants were relieved by an extension which allows them to use platforms in the EU for swaps trading until March 2021.
Manufacturers in the eurozone ended 2020 on a high, with activity in the sector increasing at its fastest pace since mid-2018. IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) rose to 55.2 in December from November’s 53.8.
The eurozone economy likely contracted again last quarter as renewed lockdown measures stifled activity. However, a December Reuters poll suggested the bloc’s GDP will return to pre-crisis levels within two years.
START TRADINGManufacturing PMIs and Policy Meetings Minutes in focus
Chinese factory activity continued to accelerate in December, though the PMI missed forecasts. Japanese manufacturing stabilized for the first time in two years in December.
For the week ahead, the data calendar includes a raft of manufacturing surveys across the globe and the closely watched ISM surveys of U.S. factories and services.
- On Monday (04.01), investors are waiting for manufacturing PMIs in France, Germany and the whole Eurozone. The market is assuming the central bank will merely refine its forward guidance on policy. The German and eurozone manufacturing sectors remain well into expansionary territory. The PMIs for Spain, Italy and France are also above the 50-line, which points to expansion.
- Investors are watching runoff elections in Georgia for two Senate seats next Tuesday (05.01) that will determine which party controls the Senate.
- Minutes of the Federal Reserve’s December meeting are due on Wednesday (06.01). The release will offer more detail on discussions about making the Fed’s forward policy guidance more explicit.
- The ECB will release the minutes of its November policy meeting on Thursday (07.01). Investors will be looking for any hints as to whether the ECB plans additional easing early next year.
- Friday (08.01) sees the U.S. December payroll report where median forecasts are for only a modest increase of 100,000 jobs.
Follow this week’s economic calendar.
LQDFXperts – Improving Economic Outlook – What’s in store for 2021
A difficult and challenging 2020 is finally over. Covid-19 hasn’t yet been brought under control, but there is renewed optimism as vaccine rollouts are underway.
EUR/USD declined sharply on the last day of the year but still managed to post a winning week. The euro has run into profit-taking late last week when it reached the highest since early 2018 at $1.2309. The common currency gained almost 9% over 2020. The dollar fell nearly 7% last year. An improving economy recovery as COVID-19 vaccines are rolled out, rock-bottom U.S. interest rates and ongoing Fed bond purchases have dented the dollar’s appeal.
GBP/USD enjoyed a sold week, gaining close to 1.0%. The signing of the Brexit agreement has brought a sense of relief to the markets and is a bullish event for the pound. The pound gained 2.5% overall against the dollar in December. Sterling’s recovery after the Brexit deal was agreed was limited.
Dollar/yen showed little movement for a second straight week, as the pair closed the week slightly above the 104 level. The dollar has been in retreat mode against many of the major currencies but hasn’t lost much against the yen. The greenback slipped 4.90% this year against the Japanese currency to 103.25 yen.
The Canadian dollar posted gains throughout the week, as USD/CAD fell by 1.0%. The greenback fell 1.79% this year against the loonie, ending at 1.2755 Canadian dollars. Traders can also expect volatility on Friday, with the release of key employment data in both Canada and the US.
AUD/USD rose for a fourth successive week and pushed above the 0.74 level. The Australian dollar ended up 9.76% the year. Investor sentiment to cyclical currencies like the Aussie remains positive.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, BBC, The Guardian