Daily Market Pulse

Yellen is asking for a larger stimulus package


The US dollar tumbled 0.07% against major currencies on Monday as traders waited for more data on the U.S economy after a disappointing jobs report last week ended an upside momentum in the greenback. According to media reports, traders have been reducing short positions in the USD, but economists say better U.S economic figures and continued progress to curb the Covid-19 soaring cases will be needed for a solid USD rebound. Meanwhile, Treasury Secretary Janet Yellen is asking for a larger stimulus package to bring the economy back to full employment. An important data docket awaits today, with investors looking towards Job Openings figures for December and the Energy Information Administration Short-Term energy outlook.


The common currency was almost unchanged against the greenback yesterday after positive data from Germany provided some support to the Euro. Although Germany’s industrial production did not show growth, it was flat, which means that Germany industry avoided a contraction in December. Furthermore, the figures suggest that despite Covid-19 lockdowns across the bloc, demand from China helped export-oriented manufactures in Europe. Elsewhere, Italian stocks and bonds continue to be boosted by premier-designate Mario Draghi bringing together warring parties from across the political spectrum. Looking ahead, more data from Germany will be published later today.


The Cable edged 0.06% up against the greenback on Monday even as the Bank of England’s prospect of rapid economic recovery is questioned amid worries around the impact of the new Covid-19 variants from Brazil and South Africa. This impact was already confirmed in the BRC retail sales report, which was released earlier this morning. Annual growth in total sales fell to -1.3% in January, from 1.8% in December. The drop in the BRC’s measure provides evidence that the current lockdown is much worse for retailers than in November. Today, market players will continue to digest reservations over the effectiveness of the AstraZeneca Covid-19 vaccine’s efficacy against the South African variant. Therefore, the GBP could be hampered to some extent by this.


The Japanese yen edged 0.17% up amid mixed economic data releases on Monday. The country reported mixed figures, as the December Trade Balance surplus resulted in ¥965.1 billion, much better than the previous ¥616.1 billion. The January Eco Watchers Survey for the current situation printed at 51.2, while the outlook came in at 39.9, missing the market’s expectations. Earlier today, the Ministry of Finance said that Japan’s overtime pay (the total remuneration, in cash or in-kind, payable to all persons counted on the payroll) dropped by 8.9% in December after falling by another 10.80% in November. This growth has been negative since July 2019. This index is watched because it is a proxy for the performance of Japanese companies. Looking ahead, the producer prices index will be released and expected to drive some attention.


Once again, the Canadian dollar enjoyed the crude oil rally, which rose more than 1% and touched its highest level in more than a year. On the back of that, the Loonie rose 0.13% against its rival U.S dollar on Monday. The price of oil, one of Canada's major exports, was boosted by supply cuts among key producers and hopes for further U.S. economic stimulus. Health officials in Toronto, detected the Brazilian variant of Covid-19 in a patient, making Canada's first identified case of the more virulent mutant strain. Thus, due to new variants, Canada will strengthen border measures and Toronto and nearby suburbs will extend a stay-at-home order.


Despite positive readings showing the country’s consumer confidence improved slightly, the Mexican peso fell 0.05% on Monday. However, the sour sentiment came after the automotive industry reported that Mexico auto production was down 15% and auto exports dipped by 6% in January. Although the International Monetary Fund revised up economic growth for the country from -9.0% to -8.5%, the rapid spread of the Covid-19 in the country is still casting doubts over its economic prospects this year. Today, Mexico will release inflation updates.


The Chinese yuan kicked off the week printing gains of 0.35% against the U.S dollar. The CNY found support on larger-than-expected foreign exchange reserves, as well as the central bank injecting more liquidity into the financial system ahead of the Lunar New Year holiday period. Meanwhile, China’s top diplomat last week warned the U.S. not to cross the country’s “red line,” in a speech seen as pushing back against early moves by U.S President Joe Biden to press Beijing on human rights. On the other hand, the threat of financial war between both countries is fading and the reason behind this is that it would be hard for a Wall Street bank to ignore Chinese stocks and bonds, which nearly tripled in value recently. 


The Brazilian Real ended 0.1% up against the greenback on Monday with investors closely monitoring the government’s spending cap after President Bolsonaro confirmed that the government is preparing a new round of emergency direct payments to low-income households. The fresh emergency aid could cost around USD1.1bn a month. The BRL also saw some support from the new outlook update from the International Monetary Fund, which revised up its GDP forecast for Brazil, from -5.8% to -4.5%. Looking ahead, investors and traders will keep an eye on inflation figures, which should show some increase.


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