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Market Recap
Global stock markets continue to rise as traders and investors appear to be reacting positively to the recent Democrat clean sweep in Georgia. Consensus thinking in financial markets is that the Biden administration is going to deliver massive amount of stimulus for the American economy.
US 10-year yield has also seen a huge inflow since the Georgia election result, with the US 10-year yield rising above one percent for the first-time since March 2020. Citi bank are projecting that US 10-year yields could hit 1.5% this year.
The reason for the rise in US bond yields will not be positive, according to Citi bank, and they are citing that a rise in the United States fiscal debt will eventually cause the greenback to sell-off, causing bond yields to spike.
Citi are also pessimistic towards US stocks, despite the new all-time highs in the S&P 500, Nasdaq, and Dow Jones Industrial Average. Citi bank notes that US stocks will be flat during the year 2021, and recommend that FTSE 100 to deploy capital, which they expect to deliver an annual return of around seven percent.
The S&P 500 is currently on a major tear higher and is showing few signs of a forming a meaningful top. Now may not be the time to fade US stocks, as traders continue to focus on energy, and so-called work-from-home stocks, and other internet-based heavyweights inside US indices.
Traders are equally bullish towards the Nasdaq, and yesterday’s breakout above the 3,000 level could be just the tip of the iceberg. Investors are not giving up on the tech-heavy Nasdaq, and yesterday’s solid ISM service sector report only helped to fuel the buying frenzy.
European stocks are also gaining upside momentum like US stocks, the ESP35, ITA40, and CAC40 are starting to look more bullish this week. The Ger30 is breaking to all-time highs right now, and still looks to be headed much higher. The UK100, just like Citi bank mentioned, also looks good right now.
Rising bond yields have helped the US dollar index somewhat. As you would expect, the USDJPY pair has seen a major move higher and is closing in on the 104.00 level. Sterling looks heavy at the moment and continues to fall away from the best levels of the year.
Day Ahead
In terms of data during the European session, the EU economy is set to release the December unemployment number, which is expected to hold steady and is probably masked by furlough schemes and government helped.
In reality, German December Industrial production data is going to be the big release during the EU session. This is a bellwether data point for Europe’s largest economy, and we could see a big market reaction if an upset takes place.
The EURUSD pair is back below the 1.2300 level and looks to be gearing up for a big move. Sentiment data shows that the majority of retail traders are bearish towards the EURUSD pair right now.
This is interesting, as Market Sentiment tool from the ActivTrader platform shows that 93 percent of traders are bearish towards the US Dollar Index at this current moment.
The highlight of the day will be the release of the Non-farm payrolls, watch out for a big reaction in financial markets if we see a miss or a big beat. Expect the current market themes to continue if the headline number comes in as expected.
