Weekly Market Commentary commencing 25th January 2021

A negative close to a volatile week on global markets. Markets were dominated by political machinations in the USA, highlighted by the largest militarized inauguration, in the history of the country. The split in the country is even more defined now and the questionable election was exemplified, with the need for more than 30,000 troops to inaugurate the President, with no public attendance outside of family, friends and politicians. This will lead to a lack of political capital in the years ahead, despite Democrat control over the House, Senate and Presidency.

The Obama third term will increase taxes and regulation, growing the Government and testing the private sector. The administration has is in the process of undoing much of the Trump administration policies, through Executive Order and will attempt to pass a massive $1.9 Trillion stimulus bill. This will deliver a fleeting sugar hit to the economy, but worrying data points to tough times ahead. Deficit and debt is now a thing of the historical past, with ‘Modern Monetary Policy’, driving interest rates to below zero, while using this as an opportunity to ramp up reckless fiscal largesse. This new policy will have enormous economic and social repercussions, as reality bites.

The Dollar measurement is relative and coordinated Central Bank expansion, has ensured that currencies strive to undermine each other. The real measure is against hard assets. The EUR traded 1.2170, while the GBP attempted to regain 1.3700, amidst gloomy economic data driven by lock-down programs across Europe. Commodity currencies are beneficiaries of rising prices, with the AUD back above 0.7700, while the NZD pushed up to 0.7170. These currencies are beneficiaries of a weaker reserve, but remain extremely vulnerable to testing economic performance and global trade challenges.

This coming week will be dominated by the market evaluation of the new US  administrations economic policies and the Federal Reserve latest decision. US employment challenges may begin to influence economic data, on a wider scale, while the virus/vaccine remains the focus for global media and those subjected to the political lock-downs associated with the pandemic.