Market Recap: February 2021
Welcome to our look back at the previous month and a look ahead to what we might expect to see throughout March and beyond.
Last month we stated that the main drivers of the economy were COVID-19 Lockdowns, COVID-19 Stimulus Packages, COVID-19 Vaccines, the new US Government, US/China Trade Relations, and Brexit.
The main market drivers were pretty much the same as January’s, with a shift toward COVID vaccine programs, which are working better in some economies than others. This has seen notable gains in instruments like WTI, Brent Crude and GBP.
Also, traders and analysts have noticed a certain “predictability” to the markets, probably based on the new US government, which took over 21 January, and the removal of several psychological disorders, and at least one Twitter account, that had plagued the global economy for the last 4 years.
Last month we wrote about global trade issues with China which will be an ongoing issue. We hear rumblings from all major economies on this topic, including the demanding of accountability for the global pandemic and human rights abuses. To be honest, these issues with China will probably not be resolved until the planet gets the pandemic under control. However, any news on this will have a major impact on Commodities, Currencies and Equities.
Price action on both Brent Crude (UK Oil) and West Texas Intermediate (US Oil) has climbed all month based on higher demand, OPEC production cuts, and supply disruption from a frozen Texas.
The WTI spot price started the month at $52.10 per barrel and will finish the month at $61.54 off a high from $63.84.
The Brent Crude spot price started the month at $54.98 per barrel and will finish the month at $63.63 off a high from $66.50.
The main driver of price in February, and moving into the next few months, will be COVID-19 vaccine results, lockdowns and travel bans which are restricting the use of automobiles and jet airplanes which, of course, require fuel. Lower demand equates to lower price.
As we have all seen in the news, progress in counties like Israel and the UK have shown better than expected results for the Coronavirus vaccine. However, there are also rumblings about certain vaccine’s not coping with certain strains and any bad news on this will have an impact on crude pricing.
Also, many economies are still trying to determine the best way forward on “passporting” of individuals who have been vaccinated and how they prove this. Any positive news on this will have a major impact on the travel and leisure sectors and indicate a future demand for crude.
The month-end dip in January has been repeated in February as the NASDAQ (US30), the S&P 500 (US500) and the Dow Jones Industrial Average (US30) all hit historical highs around mid-month, then fell off at the end.
The reason for a drop like the 3937 on the Standard & Poors’ Index down to 3780, during the last 2 days of the month, can be attributed to sell-offs where investors have taken profit, and a huge rally in US Government Bonds to where many investors and institutions have shifted their capital.
This may be short lived if you follow the technical indicators as price action on the US500 has just touched the lower trend line. Other indicators, however, like MACD, Stochastics and RSI on the daily charts, are yet to be convinced so we will wait for technical confirmation before the bull run continues.
On the fundamental side, we have several statements by FOMC members and the Non-Farm Payrolls during the first week in March, plus an FOMC meeting and Interest Rate decision 17 March.
Last month we wrote that, despite the highs of the US Equities, the European Stock Indices have been declining over fears of the new strains of COVID-19, economic woes, political instability, and general over-valuation of their component corporations.
Like their American counterparts, there was some good recovery but with a fall-off in the last half of the month.
Only the German DAX (DE30) has managed to recover to pre-COVID levels and at the end of February its level was, in fact, almost exactly where it started before the big COVID collapse.
Europe has seen better news out of Italy with Mario Draghi taking over as president and we await some policy decisions.
The biggest let-down for the European economy has been the poor distribution and implementation of the COVID vaccine and, quite recently, concern over the efficacy of certain vaccines against certain strains.
The FTSE 100 has yet to recover to pre-COVID levels in the 7000’s and had recovered this month to the high 6800’s but, like all other global stock indices, has fallen back down.
The good news for the UK economy is the very successful immunisation plan which is now in effect and appears to be well ahead of other leading economies. This has strengthened Pound Sterling. Considering that most of the companies on the FTSE 100 earn their income from foreign offices and sources, any increase in GBP negatively affects the market cap of each company, and therefore the FTSE 100.
However, during the first week in March, the chancellor of the exchequer will deliver a budget that may or may not include tax hikes to pay for the current UK deficits caused by the pandemic. Many are asking him to wait until the economy recovers but, regardless, this will affect company bottom-lines either way.
We feel that he is unlikely to increase UK taxes right away, but the economy needs continued support in the way of unemployment benefits, furlough schemes and small business support.
As February ends, the US House of Representatives has just passed Joe Biden’s $1.9 trillion relief package. This will now go to the US Senate whose members would like to pass the bill, or at least some form of it, by 14 March when current unemployment benefits expire.
The idea of a Democratic Party government, full control over the White House, House of Representatives and Senate, had caused USD weakness for some time now.
However, the slide in the USD ended abruptly on the last 2 trading days of the month with a rally on US Government Bonds causing yields to rise.
From a technical standpoint, this dramatic pullback has caused price action to intersect or cross lower trend lines in GBPUSD, EURUSD and AUDUSD and upper trend lines in USDCAD, USDJPY and USDCHF. During the first few days in March, we will watch for a break of the trend lines or a bounce.
The Australian Dollar was on a rally in February against all major counterparts except GBP.
Suddenly, on the last 2 trading days of the month, with US Bond market rallying, the Reserve Bank of Australia intervened to curb yields on government bonds, driving AUD into free-fall.
Many analysts, including a major Australian bank — Westpac — see this as a buying opportunity for the currency.
Again, watch the trend lines and confirmation of a rebound.
Last month we saw GBP strength based on the Brexit situation finally being resolved.
Many factors are keeping the Pound strong including the success in COVID vaccine implementation and the possibility of around 1500 foreign companies setting up offices in The UK to meet their new requirements under Brexit.
As mentioned above, any news on UK tax hikes will increase the value of GBP.
As with many instruments, we saw some violent moves during the last 2 trading days of the month but we expect recovery going into March.
XAUUSD had been on a bear run all through February and was attempting a retracement in the last week of the month as we spotted a perfect storm of technicals calling for the bear run to continue.
This, along with the rising USD, saw the price of Gold fall into the low $1700´s. Without any reasons for safe-haven investment or unforeseen geo-political events, we see Gold falling further into March.
That’s all for now. Make sure you subscribe to the Valutrades blogs and videos and we will see you here at the end of March.