Marius Paun | London, UK | Senior dealer | Friday 05th February 2021
In response to the recent spike in volatility regarding the retail trading, the Chicago Mercantile Exchange has increased margin requirements for silver futures by 18% from $14,000 to $16,500. Silver was supposed to be the next target for the so-called ‘Reddit traders’. Its price soared 10% on Monday but following the CME announcement it gave back those gains in the next session.
It was nevertheless a big talking point this week with US Treasury Secretary Janet Yellen calling for a meeting with regulators to discuss the volatility. Despite that, we saw record closes for the S&P, Nasdaq and Russel 2000 during mid-week. Meanwhile, the US Senate voted in favour of President Joe Biden’s $1.9 trillion Covid relief package.
We also had the US nonfarm payrolls data released on Friday showing the economy added 49,000 jobs vs 50,000 expected. The unemployment rate dropped from 6.7% to 6.3% which was surprising as markets were anticipating it to remain unchanged. However, the figure for December was revised down by 227,000. Leisure and hospitality jobs decreased by 61,000 in January adding to more than 500,000 jobs lost at the end of last year. The sector has shed 4 million jobs since before the pandemic.
China’s Caixin PMI Services numbers have been released showing a reading of 52 for January. On another note, Beijing has called for a reset of relations with the US ‘to be put back on a predictable and constructive track of no conflict, no confrontation, mutual respect and win-win cooperation’. The statement added that ‘no force can hold back China’s development and hopes Washington can rise above the outdated mentality of ‘zero-sum major power rivalry’.
The Eurozone’s Q4 GDP came in at -0.7% vs -0.9% consensus quarter on quarter which amounts to a drop of 5.1% for the year. It shows the economy shrank amid tighter covid restrictions. In the present first quarter, there are ongoing expectations for a similar tough outlook and authorities cannot disregard the likely prospect of a double-dip recession to follow.
In the UK, Bank of England left the benchmark interest rate unchanged at 0.1% with all 9 members voting in favour. The asset-buying program was also left unchanged at £895 billion. The central bank commented the financial markets are resilient, GDP is projected to recover to pre-covid levels over 2021, vaccine rollout should help ease restrictions but the outlook for the economy remains uncertain. Interestingly the inflation is anticipated to rise towards the 2% target sometime in spring.
Gold prices dipped below $1800 for the first time since last December. It seems the deficit worries and inflation concerns are not hot enough to spur precious metals renewed buying yet. It might have been that the big push from retail trading on Monday run its course rather quickly and the disappointment spilt over into gold as well, now trading around $1812.
Bitcoin has continued to recover this week. After dropping below 30,000 in the last two weeks, the cryptocurrency leader pushed back towards 38,000. The momentum looks solid and a retest of 40,000 could be on the cards.
Marius Paun | London, UK | Senior dealer | Friday 29th January 2021
The Fed Left Its Rate And Bond-Buying Program Unchanged
It’s official, Janet Yellen, ex-Fed Chair is the new US Treasury Secretary, the first woman on the job. And one of the perks is that she gets her signature on the US currency bills… Janet Louise Yellen.
We had the FOMC meeting earlier this week where the Fed left its benchmark interest rate and bond purchases unchanged as expected. Highlights from the meeting include ‘conviction’ that sustained problematic inflation is unlikely. It’s also too early to focus on tapering dates. The more immediate concern for the Fed seems to be the scenario in which the economy does not recover fully. Overall, the outlook is better despite lingering near-term risks. Importantly, banks are not experiencing the kind of losses they expected in the first place.
The US stocks reached record highs again, early in the week. However, disappointment that the US Congress might not approve any stimulus package until mid-March, coupled with supply and logistics issues regarding COVID-19 vaccine rollouts globally, took its toll on investors sentiment. All the major indices had substantial retracements since Wednesday, and are still struggling to recover going into the weekend.
Moodys reported on the EU-China agreement. They maintain that China is anticipated to reap economic benefits despite challenges for some sectors in the short term. Even more interestingly, they believe the real benefits are likely to be seen over the next 5 to 10 years. The agreement requires Beijing to open up to EU businesses.
The European Union is not happy with AstraZeneca over vaccine delays. The UK drugmaker said the initial supply to Europe is likely to be less than anticipated due to ‘reduced yields at a manufacturing site within our European supply chain”. The German economy seems to have started the new year on a back foot. An IFO economist said retail collapsed, many service providers are still affected by lockdown and he expects GDP stagnation in the first quarter.
The European Central Bank President Lagarde commented on the post-pandemic economy, which is predicted to be different. The last quarter of 2020 saw a negative GDP for eurozone but she hopes that 2021 is a year of recovery.
Meanwhile, in the UK, Prime Minister Boris Johnson said his country’s regulator will assess the Novavax coronavirus vaccine. The initial trials took place in the UK and its thought the efficacy of its Phase 3 is 89.3%. The more the merrier!.
Gold prices are on course to end the week rather flat, around the $1855 mark. A strong US dollar put the precious metal under pressure initially, but it found good support at $1830 to spark a sharp rebound. Meanwhile Bitcoin recovered from under $30,000 to over $36,000 on Friday after Elon Musk tagged the cryptocurrency in his Twitter biography (previously he laughed at the idea of cryptocurrencies having a future).