Amid a highly constructive risk backdrop floated on hopes of massive Democratic dirigible stimulus air balloons, advances on US stocks appear to have reached a mini cyclical fatigue point exacerbated by reports that China is implementing more mobility restrictions into the Chinese New Year holiday.
Restricting travel ahead of the Chinese New Year holiday to persons acquiring a negative COVID test card underscores the severity of the recent uptick in infection numbers in the world’s second-largest economy.
On the flip side, mega-cap tech and the “stay at home” basket is acting better again with investors easing back into the comfort of their cushiony living room recliner recognizing their reopening optimism could still run into an extended period of turbulence.
Netflix is the ultimate stay at home bellwether and looking at the lofty price of that stock, unsurprisingly; it seems lockdowns and TV go hand in hand.
Overall, it looks a bit quieter as the focus shifts to earnings with two hectic weeks ahead.
The lockdown in China has understandably raised some concerns among investors who after a slow start to the global vaccine rollout, are debating how fast economies can vaccinate the most vulnerable and start returning to business as usual.
The pace of vaccination may ultimately be the key driver for risk markets throughout 2021.
Investors remain precariously perched on the vaccine front while optimistically hoping for a “heralds of spring” type reopening. If vaccination rollout remains on cue, governments are likely to start lifting economic life restrictions once the most vulnerable 20-25% of the population are vaccinated during spring. At this point, hospitalisations and fatalities should drop dramatically.
The current US pace of over 800k doses administered per day is on track to reach 15m+ vaccinated in January, though that is well below the original government estimates. US states have issued just 40% of the allocated supply.
The current number of assigned US doses points to the potential for the pace to double, though bottlenecks remain. The hope is that the Biden administration might diffuse the traffic jam with better logistical coordination.
European economies struggle
Without question, Europe’s major economies are struggling in stormy seas. The ECB “compass and anchor” approach leaves investors frustrated, expecting more financial precision if not flat out dovish guidance from Europe’s central bank.
Oil fails to rally further
Oil struggled somewhat and failed to move convincingly higher overnight despite a lower dollar.
With positions stretched and some “long in the tooth”, Brent had difficulty staying above $56.00 amid profit-taking along with some hedging activity via WTI producers as it becomes increasingly evident 1Q21 demand is softer than anticipated – impacted by lockdowns across the northern hemisphere.
But the news of further mobility restrictions over Lunar New Year travel in China weighs like an anvil around the markets as this could impact oil demand from the country.
Indeed, investors are struggling to see-through short-term pain for long term gain heading into the weekend as Covid case counts in China are the most significant demand concern for traders.
The weekly Department of Energy (DOE) oil stock report will be released Friday, two days late due to the Martin Luther King holiday and the inauguration.
The API is still the only read from Oil Town USA. With much of the positive’s vibes around stimulus and Saudi Arabia’s voluntary production cuts in February and March in the price, traders are looking for the next positive likely on the vaccine rollout front to sink their teeth.
-Stephen Innes-Chief Global Market Strategist
With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets. He is regularly called upon by leading TV, radio and print publications to offer his views on the financial markets. Stephen appears extensively on global news channels such as Bloomberg, BBC, Reuters, CNBC, Sky TV, Your Money, Channel News Asia, CNN, France 24 and ASTRO Awani. As well as published in prestigious publications, the New York Times, Wall Street Journal and The Economist, among others.