Daily Market Pulse

The market sentiment was mixed


The USD, as gauged by the dollar index, fell 0.21% against a basket of major currencies on Thursday amid a choppy trading session and mixed market sentiment. Yesterday, the GDP figure was a confirmation of expectations that the growth rate of the U.S economy decelerated sharply into the end of 2020 as strict measures were imposed to curb the spread of the virus. The better-than-expected weekly initial jobless claims data (which showed claims dropping to 847K from 914K) provided some relief, but it is still very high by historical standards. Looking ahead, a rather busy data docket awaits today. December’s personal income and spending data from the US will be released, along with January’s final consumer sentiment report which is due from the University of Michigan.


In Europe, the Covid-19 vaccine rollout has been running into trouble. Production delays have snowballed into a “battle” between the European Union and pharmaceutical companies over how it is best to direct the limited supplies available. Tracking this spat, the EUR was unable to print strong gains (+0.08%) against the greenback on Thursday. Early today, the European Union will tighten rules on the export of Covid-19 vaccines, which could raise the risk of a major escalation in the global battle to secure access to vaccine supplies. Today, Germany, France, and Spain will publish their GDP figures for Q4.


The Pound gained territory (+0.23%) against the USD as strong domestic fundamentals remain attractive. This suggests that given its more efficient mass vaccination efforts, Britain is likely to attain herd immunity, which means the nation can reopen its economy faster and thus enjoy a faster economic recovery. However, the U.K-EU tension could pour cold water on this brighter outlook. It’s a pretty quiet day on the economic front, with no material data to be published in the U.K. Market players will keep an eye on the EU’s plan to tighten rules on the export of Covid-19 vaccines today and its implications for the global supply.


The greenback rallied a bit against the Japanese yen on Thursday, which led the JPY to close down 0.1% for the second trading session in a row. Although Japan has secured 120 million AstraZeneca doses, the European Union’s plan to tighten rules on the export of Covid-19 could fuel the risk of a major escalation in the global battle to secure the supply of vaccines. Japan is also seeking to kickstart its vaccination program with the Pfizer vaccine in late February starting with frontline healthcare workers. Meanwhile, on the macroeconomic front, retail sales in Japan declined 0.3% year over year in December 2020 following a 0.6% increase in the prior month, preliminary data from the country's Ministry of Economy, Trade, and Industry showed. The recent data points to a fragile and uneven recovery.


The Loonie suffered another collateral damage as mixed risk sentiment in global markets boosted the U.S dollar. The Canadian dollar fell 0.25%, with stock markets continuing to show higher volatility in the United States, Asia, and Europe on Thursday contributing to weakening the sentiment. The Loonie also took a hit from the recent building permit figures, which reported that the value of Canadian building permits fell by 4.1% in December from November. Canada's GDP report for November is due on Friday, which could help guide interest rate expectations.


The Mexican peso rose 0.26% against the USD amid mixed market sentiment, which capped further gains. The MXN received a boost from recent trade balance data, which showed a sharp improvement in the trade surplus in 2020. The monthly trade balance posted a surplus of USD 6.3 billion in December, taking the 2020 trade balance to a surplus of USD 34.5 billion (from 5.4 billion in 2019). Mexico's exports go mainly to the United States, its northern neighbor, and leading trade partner, with almost 90% of its total exports consisting of manufactured goods such as automobiles, electronic equipment, among others. Today, market players will watch for the first estimate of fourth-quarter GDP, which is expected to show that the economy grew around 3% on an annualized quarter-on-quarter basis.


The CNY recovered (+0.51%) some ground on Thursday against the USD, apparently due to the repo rate uptick. The nation’s volume-weighted average of overnight repo rate, one of the best indicators of general liquidity in China, jumped to 3.28%, extending its recent run higher and touching the highest level since 2015. This suggests that the People's Bank of China is lessening liquidity to control leverage. Although out of trading hours, Caixin will release Composite, Manufacturing and Non-Manufacturing PMIs on Saturday. 


The health crisis plunged the Brazilian economy into crisis, putting the labor market into a state of vulnerability. According to statistics agency IBGE, the unemployment rate reached 14.1% in November, slipping back from the record 14.6% in the three months to September. However, it is still very high by historical standards. The market reacted negatively to this figure, leading the BRL to close 0.54% down against the USD on Thursday. Additional pressure also came on the economic front, after official figures showed a record primary budget deficit in Brazil last year, as crisis-fighting expenditure saw total outgoings surge by a third. Looking ahead, the Producer Price Index and Debt-to-GDP ratio, both for December, will drive interest.


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