The new week has started how the last one ended with investors continuing to push up prices of risky assets. European stocks extended their recovery, with the FTSE also joining the rally even as the pound has hit the $1.39 handle. Mining stocks led the gains as copper rallied. Sentiment remains positive towards risk thanks to the ongoing COVID vaccine rollout and slowing virus outbreaks, boosting expectations about a sharp global recovery later this year – especially as bets are also rising for more US stimulus. This is also helping to fuel a rally in crude oil, with WTI nearly hitting $61 a barrel. Oil prices have also risen on expectations over higher demand for heating amid an arctic freeze in parts of the US. But with the US and China out, volumes are likely to be on thin side today. In the US, banks will be closed today in observance of Presidents' Day, while Chinese markets will remain shut until Thursday due to the Spring Festival.
Last week, Bitcoin and US equity indices hit fresh record highs as investors continued to favour the ongoing “reflation” trade, hoping that the vast government and central bank stimulus, combined with the possibility of more stimulus as well as a sharp recovery later this year due to the ongoing vaccine rollouts, will help to spur economic growth. The rally fizzled a little by mid-week due to profit-taking with the macro calendar being quiet. But on Friday, the indices bounced back sharply and the US dollar continued to be sold after the Fed had talked down the prospects of early QE tapering. This view was underscored by the below-forecast jobless claims and last week’s poor nonfarm payrolls data. Gold and silver were also showing some signs of life, but the ongoing risk rally dented kept the appetite for the haven yellow metal low.
Top 3 factors to watch out for this week:
- European company earnings and macro data – the week ahead features a handful of key macro pointers, especially from the Eurozone, while on a micro level, the focus has now shifted to Europe after most S&P 500 companies reported their results in the prior weeks.
- Reflation trade – will we see an acceleration in the FTSE rally?
- Bitcoin – could the digital currency hit $50K?
Data and earnings highlights
- Data: Japan’s GDP printed +0.2% q/q vs. 0.5% expected, causing the yen to drop across the board. Eurozone industrial production is due at 10am GMT, ahead of Canadian manufacturing sales in the afternoon.
- Earnings: BHP and Michelin
- Data: Eurozone flash GDP and employment change; German ZEW; US Empire State Manufacturing Index
- Earnings: Glencore
- Data: UK and Canadian CPI estimates, US retail sales and industrial production, and FOMC meeting minutes
- Earnings: Rio Tinto and British American Tobacco
- Data: Aussie employment report, ECB policy meeting minutes, US unemployment claims, housing starts, building starts and Philly Fed manufacturing index
- Earnings: Airbus, Carrefour, EDF, Orange, Barclays and Smith & Nephew
- Retail Sales from Australia, UK and Canada
- UK GfK Consumer Confidence and CBI Industrial Order Expectations
- Flash services and manufacturing PMIs from Germany, Eurozone and UK
- Earnings: Hermes International Danone, NatWest, Segro and Renault
Could the FTSE join the global rally?
With lots of European earnings to come (see above), the focus will clearly be on European indices such as the FTSE. While the strength of the pound has held back the index, the fact that UK and global monetary conditions are going to remain loose and government spending high, the long-term outlook on the FTSE is positive. This is especially because the UK is miles ahead of the EU in the vaccine race and after it avoided a no-deal Brexit.
The FTSE actually rebounded strongly on Friday, causing a breakout above THIS bull flag pattern:
Source: ThinkMarkets and TradingView.com
The index will need to hold its breakout keep the bulls happy, as they seek fresh highs for the year.
Bitcoin $50K incoming?
Bitcoin closed sharply higher for the fifth consecutive week and almost got to the $50K handle at the weekend, before dipping slightly. The Tesla announcement triggered buying frenzy last week, before the digital currency consolidated for the rest of the week. With more and more household names starting to accept Bitcoin and other cryptos as a form of payment, speculation is ripe that BTC/USD could be heading north of $50K soon. There are also worries about the value and worth of fiat currencies, with governments worldwide debasing their currencies, making them less worthy, which is another reason a growing number of people are moving into digital currencies. Some would go as far as to say that even gold has lost its true safe haven status as it is being manipulated in the paper form with many central banks and other institutions allegedly keeping precious metal prices superficially low. Some investors clearly think that Bitcoin is thus offering a much better store of value, and a good rate of return than gold, even at these high levels.
Bitcoin is also finding additional interest due to its strong bullish momentum. People like things that are rising rapidly in value, and this bullish momentum has drawn many speculators who like to ride the uptrend for hopefully some decent profit. The rally has been accelerating ever since prices broke above that 2017 high near $20K in December. Unless Bitcoin now breaks its series of higher highs and higher lows, the path of least resistance remains to the upside, with $50K now being the next major objective:
Source: ThinkMarkets and TradingView.com
As well as a psychologically-important level, the $50K area also corresponds with the 161.8% Fibonacci extension level of the last downswing from January high. This makes it an ideal profit-target area. Could we get there in the next few days, or will see a correction first?
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