Weekly Market Wrap 14-December to 18-December/2020

Fresh Vows At The FOMC Meeting To Continue QE ‘Until Substantial Progress Made’

Marius Paun | London, UK | Senior dealer | Friday 18th December 2020

Rising hopes for a fresh US stimulus package kept the dollar on the back foot this week. An increasing number of high profiles names have urged the US Congress to strike the deal. It would be ‘foolish’ (Warren Buffet quote) to delay it further and potentially deliver a fatal blow to millions of small businesses. So big pressure on the Washington folks to pull their fingers out and find common ground.

On Wednesday, we had the FOMC meeting with members vowing to continue to buy $80 billion per month in Treasuries and $40 billion per month in mortgage-backed securities. It also promised to continue the pace of bond buying ‘until substantial progress on employment and price stability’ will be achieved. Sadly, it added the public health crisis will continue to weigh on economic activity, employment and inflation on short and medium term.

China’s November Industrial Production came in at 7% matching expectations. A spokes-person for the National Bureau of Statistics commented that estimates for Q4 economic growth are better than Q3. The growth for 2020 is seen as relatively sound with consumption and manufacturing to continue their respective recovery.

European Central Bank confirmed it will allow banks in the eurozone to pay dividends but with severe restrictions. Dividends will remain below 15% of cumulative 2019-2020 profits, banks should prioritise their capital for lending purposes and loss absorption. Those rules will remain in place until end of September 2021.

Back in the UK, Prime Minister Boris Johnson told his cabinet ministers that a no deal Brexit is still ‘the most likely outcome’ in the talks with EU. Back and forth as per usual between London and Brussels but the gap is still big. Meanwhile, they are trying to bridge the divide, that as politically both sides have to show they’re doing everything.

We also had the Bank of England’s Monetary Policy Committee (MPC) meeting, where members decided to leave the benchmark interest rate unchanged at 0.1% in an unanimous vote (9-0-0). The central bank also maintained the Asset Purchase Facility at £895 billion.

OPEC cut oil demand forecast for the first quarter of the next year by 1 million barrels per day. They see demand for 2020 down to 9.77 million barrels per day down from 9.75 mbpd in previous month forecast. Lower demand for 2021 is mainly due to uncertainty around Covid-19 especially in the first half of the year. The US oil prices continued to recover reaching a recent high of $49.32 on Friday.

Hopes of another US stimulus also drove gold prices higher, touching $1896 on Thursday. Going into the weekend there was a slight pullback but outlook is encouraging if Washington politicians do their part.

Bitcoin made history once more, breaking above $20,000 for the first time ever. And its strong momentum pushed the price above $22,000 and even $23,000. Analysts are pointing to the massive monetary easing efforts of central banks around the world, which are bound to devalue fiat currencies even further. One interesting fact, with the growing number of millionaire/billionaires in the world; but there will only be potentially 21 million Bitcoins in circulation!