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Global Market Update
The View from Australia

Craig Killaby January 20, 2021

Data/Speakers

 

> AU January Westpac Consumer Sentiment : -4.5% v. 4.1% prev.

> UK December CPI & Core CPI : 0.6% & 1.4% v. 0.5% & 1.3% exp.

> EU December Final CPI & Core CPI : -0.3% & 0.2% v. -0.2% & 0.2% exp.

> CA December CPI : -0.2% v. 0.1% exp.

> CA BOC Rate Decision & Press Conference : 0.25% v. 0.25% exp (no change)

 

Overnight Headlines (BBG)

> President Joe Biden’s first day in office has been busy, unwinding a number of Trump’s executive orders while implementing a number of his own in the busiest day of actions from a incoming President in history

> China showed that the tensions with the US remain high despite their new leader, imposing a number of sanctions on US officials

What you need to know

The inauguration of the 46th President of the United States went on without a hitch, with the incoming President having a very busy day in office. Biden’s speech plead unity and bipartisanship as he embarks on what will be a very difficult first 100 days in office, with the US in the grips of the pandemic and mass unemployment it will be a tall task. Risk assets had a very strong day, with equity markets in the US having a record day for an incoming President, as investors look ahead to what is likely to be a wave of spending to combat the economic impact of the virus and widespread shutdowns. The S&P500 is up 1.25% and at yet another all time high, while the USD is a touch softer to start Biden’s term with commodity backed pairs seeing most of the gains.

The AUD and NZD look to be mounting a comeback against the USD after a brief reprieve, likely due to investors taking some risk off the table following the potential risks from unrest in the US. With those risks slowly unwinding, markets are likely to see some further upside in risk appetite as the focus now shifts to Biden’s aide plan. AUD crosses are looking stronger on the currency’s outperformance against the Buck, with AUDEUR the biggest gainer of the session and banging on the door of 0.6400 as the EUR weakened ahead of this evening’s ECB meeting.

Central bank meetings kicked off what will be a busy end to the trading week with the Bank of Canada keeping their policy rate unchanged, while citing a likelihood of a strong rebound in 2021. The Loonie was a big winner against the USD, up 0.7% and hitting a two year high against the Greenback. A risk to the Loonie likely lies in the change in policy from the incoming President on oil, with one of his first actions being to remove the permit for the Keystone XL pipeline. WTI crude got a slight bounce on the news, up 0.56% at the time of writing. Strong day for commodities with the exception of Iron Ore, which is a softer on the open down 1.1% while Gold had its biggest gain in weeks up 1.6% as investors eyed inflationary pressures from the large spending to come.

The Day Ahead

 

Data

 

> AU January MI Inflation Expectations : 3.5% prev.

> AU December Employment Change & Unemployment Rate : 50.0K & 6.7% exp.

> JP BOJ Monetary Policy Statement & Rate Decision : -0.10% exp.

> EU ECB Monetary Policy Statement & Decision : 0.0% exp. (no change)

> US January Philly Fed Manufacturing Index : 11.2 exp.

> US Unemployment Claims : 930K exp.

> EU January Consumer Confidence : -15 exp.

 

It should be a strong day for risk appetite, with the Aussie looking poised to attempt another move higher towards the 0.7800 handle amidst slight USD weakness and US transfer of power risks being unwound. Local focus will be on the December employment report, where street estimates are that approx. 50,000 jobs would have been added while the unemployment rate is tipped to go down to 6.7%. The brief lockdowns in December may have an impact, although much of the data may have already been surveyed prior to the news. The ECB is on tap this evening, and although unlikely to make major policy shifts forward guidance will be very important. US unemployment claims will be the data highlight in the US, however the focus will be on the White House as Biden’s first few days will be eagerly digested by markets as a signal to what may be on the horizon.

 

Range for the day : 0.7690 – 0.7785

 

AUD/USD Technicals

 

The pair’s recent range continues to hold up, with slight resistance being seen at the overnight high around the 0.7760 level while 0.7820 remains the key on another bullish run. A strong local jobs report may see that tested, although the USD continues to be the major driver. Support at 0.7660 with the early January low of 0.7643 holding up the pair.

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