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SquaredCommentary: 20th January 2021


20 January 2021

Risk sentiment came back strongly on Tuesday after Monday’s sell-off but it still feels as though the peak of risk sentiment was at the start of the year.  Globally lockdowns are becoming stricter, meanwhile vaccine roll outs are finding various issues including supply constraints.  In the short term the picture is deteriorating and risk on and short USD positions are at risk of a further wash out.

Drivers


The seriousness of the virus is clear as China is now experiencing some small outbreaks, they are taking extreme measures to contain them, which is likely to be very effective, but it shows it is almost impossible to eradicate Covid.

Pfizer’s vaccine production has slowed due to changes to their manufacturing processes. This means that supplies have been delayed to Canada and the EU. Canada’s deliveries will be pushed back to Feb which will have a significant impact on their planned vaccine roll out. US is also struggling to keep up with demand with NY saying it will need to close vaccination sites unless it can get more supplies.

Looking at the markets the US 10yr yields came off after Yellen mentioned the possibility of reintroducing the 50yr bond.  The Italian PM Conte survived a confidence vote in the Senate. This should reduce political concerns that had begun to surround Italy this week and the Biden administration has shown first signs that it will continue a tough line against China with accusations of human rights abuses and unfair trade practices.

It is not yet clear when congress will vote on Biden’s proposed stimulus package.  Biden and Harris will need to be sworn in today before Senate control passes over to the Democrats. Then Yellen, once confirmed, should be able to help push to get Biden’s relief package through.

Canada CPI followed by BoC today. Some small expectation that they could cut rates by 10bps to 0.15% from 0.25% although there is almost nothing priced. The last employment print was weak with unemployment ticking up to 8.6% although recent PMI’s and Business Outlook figures have been strong.

There are a number of data releases coming up.  We have the BoJ and ECB on Thursday no changes expected from either.  The US 20yr Treasury auction today, given the recent focus on US yields these auctions have been market moving.  There is the UK CPI this morning, Silvana Tenreyro said that “having negative rates in our toolbox wil be important”. If UK CPI is weak it could bring February 4th BoE into focus.

Numbers to Watch


Today we like long USDCAD and short CADJPY as   expressions of risk off moves in G10. Canada is struggling to get vaccine supplies despite increasing virus cases, Biden is putting an end to the Keystone XL oil pipeline, and expect global lockdowns to weigh on oil, weak Canada employment figures leave a small risk of a 10bps cut from the BoC today which is under-priced.
Waiting for rallies to 0.8950 to fade the rally in EURGBP leaving room to add at 0.9000. Still expecting UK to outperform EU given the speed of the vaccine roll out in UK but in the short term the risk off could lead to GBP position reduction. Also watch out for UK CPI today as a weak print could reignite talk of negative rates at the BoE. 0.8863 still the level to watch on the downside.


Market Updates

Rony Nehme - Chief Market Analyst at SquaredFinancial


Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

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