The mood across financial markets has been lifted by renewed optimism around more US fiscal stimulus and a general positive earnings picture. It looks like last week’s retail trading frenzy which triggered explosive levels of volatility in heavily shorted shares have somewhat stabilized, essentially adding to the overall optimism across markets. Given the semblance of stability, investors are redirecting their focus back towards fundamentals with the spotlight shining on Joe Biden’s $1.9 trillion stimulus relief package. With Senate opening a debate on a budget resolution for the 2021 fiscal year, this has raised hopes that Biden's stimulus package could pass with a simple majority.
Elsewhere, Asian shares were mixed this morning thanks to disappointing data from China. European stocks may open higher amid fiscal hopes and progress in the global vaccine roll-out programmes. The S&P 500 and Nasdaq climbed overnight following better than expected revenues from tech giants Alphabet Inc. and Amazon. When factoring in the improving market mood and the fact that US futures are green, Wall Street is positioned to open on a positive note.
While risk-on seems to be the name of the game this week, the coronavirus menace, possible complications with the vaccine rollouts and rising infections may limit create obstacles down the road for global equity bulls.
Dollar steady ahead of ADP
The main risk event for the dollar today will be the ADP private employment report. Markets are expecting roughly 49,000 jobs to have been added in January compared to December’s reading of -123,000. A disappointing report may strengthen the argument for US fiscal stimulus – ultimately weakening the US Dollar.
Looking at the technical picture, the dollar index continues to push higher on the daily charts with prices trading above 91.00 as of writing. Bulls could aim for 91.25 in the short term with 92.00 looking like a longer-term target. Should 91.00 prove to be unreliable support, the DXY could sink back towards 90.50.
Oil bulls are back in town
Oil climbed to the highest level in over a year as tightening global supplies aided the commodity’s virus- recovery rally. Later today, a panel that oversees OPEC’s strategy -- the Joint Ministerial Monitoring Committee will meet online to assess the outlook.
The JMMC is unlikely to recommend new policies until the next fill OPEC+ meeting in early March. However, any fresh insight on the outlook for Oil may move prices.
Bulls are finding support from the massive drawdown in crude oil inventories which brightened the demand outlook. But rising coronavirus cases, hiccups in the vaccine rollouts across the globe, lockdown restrictions, and a possible delay in the US stimulus package may threaten upside gains.
Commodity spotlight – Gold
Gold remains a fierce battleground for bulls and bears. Over the past few weeks, the precious metal has struggled to break away from the sticky $1850 thanks to conflicting themes.
Given the extraordinary and utterly shocking events witnessed across financial markets, gold has the potential to shine in the week ahead as investors watch the show from a safe distance. Other key factors impacting Gold revolve around the Dollar’s performance, Covid-19 developments and US jobs report.
Talking technicals, it will be interesting to see whether prices can break away from the $1850 regions this week.