Weekly market update : Many unknowns in 2021

01/11/2021 | 08:43am
Monday
January 11
Weekly market update
intro The year 2021 begins with records all around the world, against a backdrop of hope for economic recovery linked to vaccination campaigns across the globe but also to vast fiscal stimulus plans and support from central bankers. Last week, investors mostly welcomed the certification of Joe Biden's victory by Congress, paving the way for new support measures for American households.

Indexes

Over the past week, we have seen a flurry of records.
In Asia, the Nikkei finished on a 30-year high (best closing since August 1990), recording a weekly performance of 2.5%. The Hang Seng won 2.3% and the Shanghai Composite 2.8%.

In Europe,the CAC40 climbed 2.6% over the last five days, while the Dax moved to its historical highs, gaining 2.5%. With the last-minute post-Brexit agreement, the Footsie is up 6.2%, relegating the new national containment measures to the background. For the peripheral countries of the euro zone, Portugal performs by 7.8%, thanks to energy and bank values. Spain gained 3.9% and Italy 2.4%.

In the U.S., the Dow Jones recorded a weekly performance of 1.5%, the S&P500 gained 1.6% and the Nasdaq100 only 1%, as operators feared a tightening of regulations for technology giants due to the Democrats being back at the helm.



Euro Stoxx banks index

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Commodities

Oil starts the year on a high note. Optimism continues thanks to Saudi Arabia, which intends to support oil markets by voluntarily lowering its production over the next few months. This reassures investors while the recovery in demand remains fragile. In this context, the price of Brent crude oil is rising above USD 54 per barrel while WTI is trading above USD 51.

There is no euphoria in the precious metals compartment. Gold followed a third consecutive session of decline to USD 1885, penalized by investors' risk appetite. The momentum is similar for silver, which is trading at USD 26.5 per ounce.

Copper is up to just over USD 8,000 per metric ton, zinc is back to USD 2,840 while nickel is trading at USD 18,000.

Equities markets

Albemarle Corporation, is a global chemical company headquartered in Charlotte, North Carolina. Its market capitalization exceeds $19.5 billion. The company has a leading position in the lithium, bromine and refining catalyst markets.

In 2019, these three business segments accounted for 37.8%, 28.0% and 29.6% of the company's sales, respectively, but the largest contributor to results is undoubtedly lithium, which generates 50.6% of EBITDA. It therefore plays an important role in the operational process and in Albemarle's ability to generate cash.

Last week, the share price soared with a cumulative performance of 23%, driven by the increase in demand for lithium. The company announced on January 7 that it plans to invest between $30 million and $50 million by 2025 to double the production capacity of its Silver Peak, Nevada facility. In addition, it also plans to initiate a program to evaluate Nevada's clays and other resources for commercial lithium production.

Albemarle may well be surfing the megatrends of green mobility and energy storage. Indeed, lithium is a strategic resource in both of these areas. The technical characteristics of the stock are bullish in the short, medium and long term, as evidenced by our Screener tool.

Strong surge in Albemarle Corporation shares

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Bond market

The US 10-year yield increased significantly to 1.08%, a first since March. The market is expecting greater stimulus with the Democrats' control of the Senate.

On the other hand, sovereign bond yields in the rest of the world are stabilizing. The European Union and the United Kingdom managed to reach a trade agreement at the last minute, apparently putting an end to a dragging saga. This agreement, even if only partial, has lowered any desire to raise interest rates. The bund is being negotiated at -0.52% and the French OAT at -0.32%, despite concerns about the rapid introduction of vaccines in Europe and the threat of a prolonged blockage in Germany.

Italy's debt is being treated on a 0.52% basis, while Portugal and Spain see their 10-year benchmark extended on the symbolic zero line.

Switzerland still borrows on a very advantageous basis at -0.53%. Finally, the Greek debt is remunerated at 0.58%.
Forex market

Pressure on the dollar persists. The Democrats' victory over Senate control paves the way for more spending to boost the economy, which in turn allows for a greater risk of inflation. This prospect tends to further weaken the greenback, which is on the defensive against all major currencies. The dollar is thus returning to areas that have not been traded for several years, such as the EUR/USD at 1.22 or the USD/CHF at 0.88. At the macroeconomic level, the decline in job creation in the private sector in December did not favor the recovery of the greenback.

The return to lockdowns throughout England to fight the spread of the new strain of coronavirus reduced investor enthusiasm for the pound, which fell slightly to 1.36 against the dollar or 0.90 against the euro.

The decision by major oil-exporting countries to reduce supply has helped push commodity currencies such as the Canadian dollar and the ruble higher. In the southern hemisphere, the Australian and New Zealand currencies continue to be sought after by currency traders, thanks to signs of a dynamic recovery in China.

In the field of cryptocurrencies, it is difficult not to mention a record for Bitcoin, which has reached stratospheric levels to USD 40,000, bringing its market cap to over USD 700 billion. The increase reaches 75% in 1 month.

The USD/JPY exchange rate evolves on a hinge zone

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Economic data

In China, the Caixin manufacturing and services PMI indices both missed the consensus, coming out at 53 and 56.3 respectively (against 54.7 and 57.8). They nevertheless confirm the solidity of Chinese activity.

As for the euro zone, these same indices fell to 55.2 and 46.4 (against 55.5 and 47.4 expected). Other macroeconomic data were disappointing overall, as was the 6.1% fall in retail sales and the 0.3% drop in the CPI index. The PPI index, on the other hand, came out up 0.4%, whereas the market was expecting 0.2%. The unemployment rate fell to 8.3%.

In the United States, the figures were positive. The ISM manufacturing and services indexes rose to 60.7 and 57.2. Industrial orders rose by 1%. On the employment front, the ADP reported 123K job losses in the private sector, and monthly data showed an unemployment rate of 6.7%, with 140K job losses (consensus +60K) and hourly wages up 0.8% (consensus 0.2%).
Many unknown in 2021

Investors have rarely started the year with so many questions on their minds. Nevertheless, these apprehensions hardly show through in the upward trajectories of indices, which reach new zeniths on a daily basis. The unprecedented monetary and fiscal support, coupled with the potential for an economic rebound in sight, are propelling equities. Some are reaching new highs, while the most cyclical segments of the stock market are benefiting from a strong catch-up momentum.

The road ahead for the next twelve months looks adventurous and generates many questions. Will the central banks inject as much liquidity in the new year? Will budget extensions continue to push down the greenback and could they lead to a return of inflation? Will vaccines be a real solution to regain our freedom? And finally, will Sino-American trade tensions ease?
Patrick Rejaunier
© MarketScreener.com 2021
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