The week that is about to conclude will not live in the memories for too long – unless you are a crypto trader and were long Bitcoin! 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 out by mid-week, but this was due to profit-taking as the macro calendar was quiet. Indeed, by Friday, the indices were bouncing back and the US dollar remained on the backfoot after the Fed talked down the prospects of early QE tapering. This view was underscored by the above-forecast jobless claims and last week’s poor nonfarm payrolls data. Gold and silver were also showing renewed bullish signs at the time of writing.
Top 3 factors to watch out for in the week ahead:
- 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 the FTSE join the global rally?
- Bitcoin – could the digital currency hit $50K?
Data and earnings highlights
Monday:
- Data: Japan quarterly GDP, Eurozone industrial production and Canadian manufacturing sales
- Earnings: BHP and Michelin
Tuesday:
- Data: Eurozone flash GDP and employment change; German ZEW; US Empire State Manufacturing Index
- Earnings: Glencore
Wednesday:
- Data: UK and Canadian CPI estimates, US retail sales and industrial production, and FOMC meeting minutes
- Earnings: Rio Tinto and British American Tobacco
Thursday:
- 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
Friday:
- 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, HSBC, Lloyds Banking Group, Segro and Renault
Could the FTSE join the global rally?
In the past week, some investors appeared happy to book profit on their long equity positions ahead of a long weekend in the US where banks will be closed Monday in observance of Presidents' Day. Chinese markets will remain shut until Thursday due to the Spring Festival. 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.
So, I think the UK index will be able to stage a rally. It will need to hold its breakout above THIS bull flag pattern to keep the bulls happy:
Source: ThinkMarkets and TradingView.com
Bitcoin $50K incoming?
Bitcoin was on course to close sharply higher for the fifth consecutive week and the $50K handle is now in sight. The Tesla announcement triggered buying frenzy on Monday, 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?
South African Markets in focus
By Kearabilwe Nonyana
It was another great week for equity markets as the benchmark JSE top 40 breached the 60000-point mark during the week. Another record high backed by a strong set of earnings updates from South African corporates. The deep discount between Tencent and Naspers was also in focus as Tencent in Hong Kong continued to set record high therefore pushing Naspers and Prosus. With such a heavy weighting on our index Naspers will be one of the biggest factors if the market continues to trade above the 60000-point mark and continue to set record highs.
The week ahead
The upcoming week will have a couple of data points that financial markets participants will pay particular attention to. South African Retail sales number for December will be released on 17
th of February this will be an indication of how South African listed retailers like Clicks, Shoprite and Woolworths performed during the holiday periods. South African clothing retailers have showed how well they have performed over the recent periods it will be interesting to see if it is the same for the food retailers. On the 17
th of February Stats SA will release the CPI data for January 2021. In recent months we have seen significant increases in the food basket in the CPI data this has not led to an increase in inflation but a continued increase in the food basket coupled with increase in the cost of Fuel will be a worrying sign for the market as this may force the hand of the central bank to start increasing interest rates sooner than expected. Interest rate sensitive stocks will be affected by the CPI data so make sure to look out for the banks and General retailers.