After a positive start to the first session of the new year, sentiment turned sour as concerns grew over tougher coronavirus restrictions with an alarming case rises in the UK and elsewhere. In the US, daily cases soared to a record of nearly 300,000. Boris Johnson was set to address the nation at 20:00 tonight, and the UK Prime Minister was likely to announce new lockdown measures, just as the nation started to roll out the vaccine developed by Oxford and AstraZeneca.
Stocks turned sharply lower after initially climbing to new record highs. The U-turn in sentiment caused the dollar to rebound, especially against the pound and risk-sensitive commodity dollars. Bond yields dropped as investors speculated that global monetary policy will likely remain loose for even longer. This helped to keep safe haven gold supported near its earlier highs, but it too came off its best levels as the dollar rebounded across the board.
This is obviously the first trading day of the year and it is important not to read too much into one day’s worth of price action. But it is certainly not how the bulls would have liked to start the new year. A number of the global indices are now displaying bearish-looking candles on their daily charts and unless we see a sharp rebound later on today, expect to see some further downside follow-through on Tuesday and possibly in the days ahead until some froth is removed. It is worth pointing out that the markets have already been pricing in the impact of the vaccines and at these levels investors are finding it increasingly difficult to justify holding onto some of the severely overvalued stocks without first seeing a proper correction. Others are happy to book profit ahead of the fourth quarter reporting season.
Source: ThinkMarkets and TradingView.com
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