Daily Market Commentary 22nd January 2021

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The ECB left rates unchanged, but reiterated that it ‘stands ready to act,’ as necessary. ECB President LeGarde cited the serious risks posed by the increasing spread of the virus and confirmed monetary options available to combat the economic devastation caused by the political lock-downs spreading across the Continent. The untold damage is partially revealed in the 2020 EU GDP contraction of 7.3%! The ECB estimated that the economy would bounce back in 2021, forecasting a 3.1% GDP growth rate, that will be vaccine-led. The problem with these forecasts is they rely on a massive turnaround in economic and social activity across Europe, totally dependent on a ‘return to normal’, which will not happen, unless politicians and their policies are changed.

The Bank of Canada and Bank of Japan also release monetary policy updates, in a similar vein, citing the current economic devastation, but anticipating a vaccine-led recovery for 2021. The damage being inflicted by current lock-down policy will continue well into the first quarter and be reflected in economic data for the first half of the year, at the very least. The Central Bank predictions are overly optimistic. The US markets calmed after the inauguration and a slew of Executive Orders, expecting a return to Obama era economics and politics. Higher taxes and increased regulation cannot be good for economic growth. The EUR improved to 1.2150, while the GBP tested 1.3700, peaked by a flagging US Dollar.

Commodity currencies benefitted a flagging reserve, with the AUD rising back to 0.7740, while the NZD drifted back from 0.7200. The pro-Global policies of the US administration should benefit global trade, boosting demand for commodities, although a sick and despondent US economy would spread as fast as the virus?

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