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Weekly Market Digest
January 11 to January 15, 2021

Don Curren January 15, 2021

Predicting the future is as irresistible as it is impossible.

It’s impossible, strictly speaking, because the future doesn’t exist yet and is therefore inherently unknowable.

It’s irresistible because being able to forecast the future, even in very approximate ways, can be highly lucrative – not to mention essential for continued survival in some situations.

Players in foreign exchange, arguably one of the most opaque and unpredictable markets, are particularly well acquainted with both the temptation to make forecasts and the fiendish difficulty of doing so with any degree of accuracy.

While certain “knowledge” of the future is impossible, making informed forecasts based on factual observations about the present and the past, and extrapolating current trends them into the future, is.

Forecasts that are based on facts rather than ideology, are rigorous, and recognize their own limitations through means such as offering only probabilistic results rather than overly definite predictions, can be extremely useful.

It’s an approach was once summed up by the economist Joseph Schumpeter: “I do not pretend to prophesy; I merely recognize the facts and point out the tendencies those facts indicate.”

We’ve recently all become familiar an excellent example of that kind of forecasting – the modeling that epidemiologists (the good ones, that is) have provided about the spread of COVID-19.

It’s interesting that those models – which broadly speaking have turned out to be true, at least in their forecasts about the second wave – typically offer more than one scenario: one which shows the spread of the coronavirus if not checked by any additional measures, and others where additional measures are embraced.

Thus, they can provide the means of shaping the future they’re meant to forecast – they can become “self-defeating” prophecies, as opposed to those self-fulfilling prophecies we often hear about.

The trick is that it’s incumbent on us to respond to the information they offer if we’re to ensure they help alter the course of the pandemic.

The relentless climb of COVID-19 cases in Canada, the US, the UK and many other parts of the world, shunted into background by the turmoil in US politics in the last few weeks, attests to the fact too few people are paying heed to those forecasts. According to data from Johns Hopkins University, there are 93,363,092 cases of COVID-19 globally as of Friday morning, and at 1,999,849, the death count is rapidly closing in on the grim milestone of two million deaths associated with the disease.

Last week, in that very realm of US politics, a forecast of a potentially avoidable scenario was ignored, and as a result, that scenario played with dire consequences.

On Tuesday, the Washington Post reported the FBI warned of a violent “war” at the US Capitol in an internal report issued a day before last week’s deadly siege, but it wasn’t acted on urgently enough to prevent the violent storming of that building. That in turn triggered the second impeachment vote against President Donald Trump in the House of Representatives on Wednesday of this week, making him the only president ever to be impeached twice.

This week, the same agency has made similar forecasts that violence is possible in Washington, DC, and state capitol buildings around the US. Judging by the video footage of the National Guard deployed in the US capital this week, the FBI’s warning is actually being heeded this time, and may, if all goes well, become another instance of a “self-defeating” prophecy.

On Thursday, US President-elect Joe Biden offered a complex and highly conditional “forecast” of his own in the form of a $1.9 trillion stimulus package dubbed the “American Rescue Plan,” which includes bigger stimulus checks, more aid for the unemployed, the hungry and those facing eviction, added support for small businesses, states and local governments and increased funding for vaccinations and testing, according to a report from CNN.

Of course, the American Rescue Plan is more than just a forecast. It’s a detailed and ambitious call to action, and its unveiling constituted one of the most significant developments in yet another highly eventful week.

I’ll conclude with a modest forecast of my own: all eyes will remain riveted on US politics next week. The likelihood of more violent episodes like that at the Capitol Building last week seems small, given the extensive preparations there. But, given the continuing tension and polarization in US politics, it’s impossible to rule them out completely.

Three major central banks will have policy announcements next week – the Bank of Japan and the Bank of Canada on Wednesday and the European Central Bank on Thursday – but they are unlikely to garner much attention given the drama surrounding developments in the US.

The data calendar is light, with no major economic releases in the US other than weekly jobless data on Thursday, with Canadian and British consumer price index data on Wednesday, and retail sales data from Canada on Friday.

Suggested Reading   |   Cambridge Market Analysis

■ US Consumer Sentiment Dips in January, but Relief Package Bolsters Greenback  read article
■ US Retail Sales Take Hit as Consumers Tighten Belts During Holiday Season  read article
■ US Initial Jobless Claims Surge as Restrictions Intensify  read article
■ US Inflation Higher on Gasoline Surge in December, But Overall Price Pressures Contained  read article

Suggested Reading   |   Counterparties

■ Washington Post: Biden team briefs Congress on emerging stimulus plan, aims for bipartisan deal  read article
■ New Yorker: What’s Wrong with the Way We Work  read article
■ Project Syndicate: A Fragile Recovery in 2021  read article
■ Yahoo Finance: Atlanta Fed’s Bostic: Rate hike ‘might be more in play’ in second half of 2022  read article
■ Aeon: Evolution’s engineers  read article
■ Guardian: Does vitamin D combat Covid?​​​​​​ read article
■ IMF: Legal Aspects of Central Bank Digital Currency: Central Bank and Monetary Law Considerations  read article
■ Marker: The Bitcoin Dream Is Dead  read article
■ CBC: Anti-government website hosted in Montreal shut down after promoting armed protests in U.S. ​​​​​​ read article

Calendar for the Week Ahead

Monday, January 18
■ CAD – Housing Starts

Tuesday, January 19
■ EUR – ZEW Economic Sentiment Index
■ EUR – Current Account Balance

Wednesday, January 20
■ GBP – Consumer Price Index
■ USD – Presidential Inauguration
■ CAD – Consumer Price Index
■ CAD – Bank of Canada Interest Rate Announcement
■ AUD – Employment Data
■ JPY – Bank of Japan Interest Rate Decision

​​Thursday, January 21
■ EUR – European Central Bank Interest Rate Decision
■ USD – Jobless Claims
■ JPY – Consumer Price Index

Friday, January 22
■ CAD – Retail Sales

Don Curren
Market Strategist and Content Editor