It has been a choppy week for the major indices, although that’s not to say it has been quiet elsewhere. We have seen sharp moves in things like Bitcoin, Turkish Lira and some individual stocks such Tesla. But insofar as the wider markets are concerned, the week’s action – or lack thereof – can be attributed to two opposing forces cancelling each other out, as optimism over the developments of effective vaccines from Moderna, Pfizer-BioNTech and Oxford-AstraZeneca has been somewhat overshadowed by concerns over surging virus cases and the resulting lockdowns. Overall, though, the bullish trend has remained intact for most risk assets, and the consolidation after a big two-week rally is never a bad thing from a bullish point of view anyway. So, while it may feel like equity investors are more concerned about the new lockdown measures to stop the spread of the coronavirus than they are hopeful about the prospects for a vaccine, the underlying bullish trend still remains intact.
Heading into the new week, news of vaccines will likely dominate the agenda, although prepare to hear more about Brexit as well, as we enter a crucial stage for the trade talks between the UK and EU.
Vaccine news likely to dominate agenda again
On the Vaccine front, Pfizer has already confirmed that it will be applying for emergency-use approval from the Food and Drug Administration (FDA) of its on Friday. The FDA has scheduled a meeting for review for December 8, 9 and 10. Pfizer’s CEO, Albert Bourla, has said that the first doses of the vaccine could be shipped out within hours of the FDA approval, should it pass. As the vaccine race continues, the need to develop and approve one cannot come soon enough, with the hospitalizations in the US continuing to rise along with infections and deaths. In Europe, new cases have started to level off in some nations and the infection rate – the R – has started to fall back in the UK, albeit it still remains above 1.
In the coming weeks, more companies are expected to announce hopefully positive news regarding the development of their own vaccines and other treatments for COVID. This could provide bouts of buying momentum and keep the bears at bay.
As the vaccine race continues, the need to develop and approve one cannot come soon enough, with the hospitalizations in the US continuing to rise along with infections. It could be months before a vaccine is widely available. To bridge that gap, more government and central bank support is needed. EU leaders have so far struggled to approve a $2 trillion stimulus package for the single currency bloc, while in the US, Trump’s refusal to accept losing the election to Biden has raised uncertainty over the timing of the much-needed stimulus there.
Still, the markets remain convinced that sooner or later, more stimulus will be provided and with renewed hopes that things might turn back to normal in the not-too-distant future, thanks to the developments of vaccines, the downside for risk assets look to be limited.
Brexit deal close to being finalised
Meanwhile, on the Brexit front, investors are becoming increasingly convinced that a deal could be around the corner. After months of futile talks, it looks like the two sides are finally getting close to agreeing on trade and security. According to some media reports in the UK, quoting European commission’s most senior official, Ilze Juhansone, gaps on these issues are “slowly shrinking,” and that the majority of the 11 key negotiation issues now had “joint legal texts with fewer and fewer outstanding points.” Adding to the optimism, the European commission president, Ursula von der Leyen, said that after “difficult weeks with very, very slow progress now we have seen in the last days better progress, more movement on important files. There are still quite some metres to the finish line, so there’s still a lot of work to do.”
So, it is worth keeping a close eye on the GBP/USD and other GBP crosses in the days ahead, as a potential agreement could send the currency sharply higher:
Source: ThinkMarkets and TradingView.com
The Cable has been putting in higher highs and higher lows for months and in recent weeks the periods where it has come under selling pressure have been progressively shallower. This points to increased buying pressure. With rates being not too far off the peaks from this year and last year, around the 1.35 handle, I feel like the pressure is building for a bullish breakout above this level over the coming days and weeks. Could the break happen in the week ahead? I wouldn’t rule it out.
Bitcoin heading to $20K?
Bitcoin has been surging higher over the past few weeks, rising towards levels not seen since 2017. Investors have been piling into Bitcoin as it continues to become increasingly popular as an alternative to fait currencies. Some even regard it as a better store of value than gold because, unlike the precious metal, the supply of the digital currency is known and running short as more and more investors get their hands on it. At just under $19K, Bitcoin was on course to reach its 2017 record peak of just under $20K, but will it get there and if so, can it then reach for $25K or even higher over time?
Source: ThinkMarkets and TradingView.com
It is worth pointing out that the rally is looking significantly overstretched, so watch out for a potential pullback in the coming days. What you want to see from a bullish point of view is a period of consolidation for price to work off its overbought conditions through time than price, before potentially expanding further higher.
Quiet week for data
Meanwhile, everyone is expecting economic data to deteriorate in the coming weeks due to the impact of the latest lockdowns. So, don’t be surprised if the markets show little or no reaction to potentially weak data.
Among the key highlights will be Monday’s release of the Eurozone manufacturing and services PMIs, which will reveal the extent of the damage the latest lockdowns have caused. But if the data turns out to be surprisingly better than expected, then this could lead to a short squeeze rally on the euro, with many people expecting the single currency to fall because of the upcoming expansion of QE by the European Central Bank in December. In other words, there is a risk that sellers who have been too early in the EUR/USD, might be forced to liquidate their positions.
Also on Monday, we will have NZ retail sales as well as UK and US PMIs.
With Thursday being Thanksgiving in the US, there will be a mini data dump on Wednesday from the world’s largest economy: Prelim GDP (second estimate), unemployment claims and FOMC minutes will all be released on the day. The last two days of the week will be very quiet for data.
South African Markets in focus
By Kearabilwe Nonyana
In the middle of the chaos which is engulfing the world the markets seem to be operating in a different reality. It really goes to show how access liquidity seeks a home which drives returns and returns will overlook risks associated to lower demand. The monetary policy committee this week decided to hold the repo rate 3,5%. Our market is still driven by global events and as Pfizer and Moderna reported on the efficacy of their vaccine markets turned green and our benchmark ALSI is set to end the week slightly higher in line with global markets.
The week ahead
The economic calendar is light on the week with the local CPI data out on Wednesday in the last MPC meeting it could be seen that the SARB expects inflation to start rising from the first quarter of 2021 and the pace of the increase in inflation will determine what the SARB does; if the SARB raises interest rates too quickly it will dampen the green shoots that are springing in the recovery stages of the economy. During the week, the minutes on the FOMC will be released. The FOMC minutes are eye into the thinking of the fed on growth as well as employment this is significant, as it sets policy for future Fed meetings.