5 Issues to Look Out for This Week - 1/3/21

5 Issues to Look Out for This Week – 1/3/21

By Mateo Jarrin Cuvi

March is upon us, which means warmer weather for those of us in the northern hemisphere. Are the markets warming up this week too? Let’s find out!

Shall We Expect a Spike in EU Inflation for February?

Following an increase to 0.9% in January after five months in the negatives, will inflation in the European Union continue its surge?

Inflation in January was spurred by a 0.65% contribution from the services sector, 0.37% from non-energy industrial goods and 0.30% from food, alcohol and tobacco. This increase marked one of the quickest inflationary spikes in more than a decade for the EU.

Despite signs that there might be a surprise on the upside for the month of February, our Head of Investment Research believes that inflation shouldn’t pick up too much.

There might be some inflationary pressure coming from the jobs market with those workers willing to brave the pandemic having more bargaining power and driving salaries up. However, a slack on GDP due to lower consumer spending as a result of COVID-19 will negate much of these gains.

Speaking to the Financial Times, Andrew Kenningham, an economist with Capital Economics in the UK, believes that in the long term, inflation rates will shift back down and hover around the 1% rate.

“We expect inflation to drop back again as we think the impact of the pandemic recession will ultimately prove to be disinflationary,” Kenningham said.

Find out for yourself whether these forecasts ring true or not on Tuesday, March 2nd at 10 am GMT when the EU releases its Consumer Price Index (CPI) for February.

Another Record-Setting Quarter for Australian GDP?

Australia had a summer to remember with GDP growth of 3.3% in the last quarter of 2020, the highest turnaround in more than 50 years following a -7.0% contraction the previous quarter.

Strong consumer spending resulting from the lifting of COVID-related restrictions spurred much of the Land Down Under’s growth.

Household spending rose by almost 8% while the services sector grew by almost 10% as restrictions on hotels, restaurants, bars, museums and recreation centers were dampened.

Despite this impressive improvement, the Australian economy is still trying to recover from the chaos wrought by the coronavirus.

According to the Australian Bureau of Statistics, “the level of activity in the economy remains lower than prior to the pandemic, reflected in a 3.8% decline through the year .”

Will we see more of this remarkable growth when Australia issues its latest GDP figures on Wednesday, March 3rd at 12:30 am GMT?

This is a prime time to trade the country’s ASX200 index and the Aussie dollar, so buckle up!

Any Light at the End of the Tunnel for US Employment?

The last US Non-Farmers Payroll (NFP) release reported that about nine million less Americans were employed compared to January of last year.

Despite witnessing miraculous gains during the past nine months, employment in the US is still sputtering along as a result of COVID-19.

January’s NFP showed that only 6,000 private jobs were added to the US economy as the healthcare, hospitality and retail sectors continue to struggle.

While the federal government hired a fair share of new employees following Joe Biden’s inauguration, only a grand total of 49 thousand workers were added to the economy between December 2020 and January 2021.

Furthermore, as explained by Peterson Institute for International Economics, “while the unemployment rate has fallen steadily from 11.1 percent in June 2020 to 6.3 percent this past month, this has not been accompanied by a return of people to the workforce—as the labor force participation rate has been essentially unchanged at 61.4 percent for the last seven months.”

Will the NFP for February, which will be issued on Friday, March 5th at 1:30 pm GMT, present us with larger signs of recovery?

NFP is one of our favorite indicators, so make sure you’re paying attention and prepare your trades!

Rising Interest Rate = Not Good for Tech Stocks

Interest rates in the US have been on the rise with 10-year and 30-year Treasury yields respectively hitting 1.423% and 2.3% last week and showing little signs of slowing down.

As explained by MarketWatch’s Sunny Oh, “long-term Treasury rates have risen in weeks, partly in anticipation of broader inflationary pressures that are expected to materialize later this year, likely driven by a combination of the continued reopening of the U.S. economy, pent-up spending by consumers and expectations of further fiscal relief from Washington.”

Why’s this significant?

Higher interest rates primarily affect growth (i.e. tech) companies, which tend to reinvest their earnings to boost growth and have cash flows well into the future.

In many instances, these rising rates lead to sell-offs of tech stocks as has been the case these past few weeks with the tech-heavy NASDAQ 100 consistently losing value.

Might this be a sign to go bearish and trade the NASDAQ 100 or tech stocks such as Facebook, Amazon, Tesla and Google?

Keep a close eye on interest rates and have those trades ready!

A Square Deal for Bitcoin

It’s been a wild (and volatile) ride for Bitcoin this past couple of weeks.

Following a precipitous drop in value last week, Bitcoin once again picked up steam and broke the $50 thousand mark thanks to a $170 million investment from Square, the mobile payment company started by Twitter’s Jack Dorsey.

With this latest purchase, 5% of Square’s total assets are held in Bitcoin.

Similarly, MicroStrategy, a tech firm that focuses on business intelligence, mobile software, and cloud-based services, purchased an additional $1 billion worth of Bitcoin, a move that has helped the value of the company’s stock rise by 400% since August of 2020.

Regarding this latest acquisition, MicroStrategy’s CEO Michael J. Saylor said: “The company now holds over 90,000 bitcoins, reaffirming our belief that bitcoin, as the world’s most widely-adopted cryptocurrency, can serve as a dependable store of value.”

With Bitcoin back on the rise, you better hurry up and trade BTC today!

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*Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.

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