January 21, 2021

ECD Day Is Here, Record Highs Continue

ECD Day Is Here, Record Highs Continue

European stock futures are trading flat while U.S. futures are still following up Wall Street’s momentum from yesterday. The Dow Jones Industrial Average surged 250 points and posted another record high. The S&P 500 index jumped 1.4%, while the Nasdaq climbed another 2%. Both of these indices also made another all-time high. 

There is simply a lot of enthusiasm and optimism among investors and traders about the White House’s new administration. Traders believe that Joe Biden, the new President of the U.S., is going to make the necessary changes and rapidly. That is because Democrats have sealed control of the White House, Congress, and Senate. Getting policies passed will no longer be an arduous task. Both the U.S. President, Joe Biden, and Janet Yellen, the Treasury Secretary, have confirmed massive fiscal spending, and getting it across the line with the help of other lawmakers should not be an issue. Remember, it took a long time for Donald Trump to get a minor 900 billion dollar second fiscal spending aid package across the line, and the current package is in the trillions. It seems like that this could be a walk in the park for Joe Biden. 

In addition to this, there is also a lot of confidence in bringing the virus situation under control. That is mainly because a large part of the potential fiscal spending is also geared to address fundamental and structural issues.

The ECB Day 

All eyes are on the European Central Bank today. It is the biggest event of the day. It is pretty much given that market players are not expecting the ECB to move a muscle today. Hence, expectations are for no change in the monetary policy. That is because the bank only recently boosted its asset purchase programme. In December last year, the bank increased its asset purchases by 500 billion Euros, and it also extended the bond-buying programme until the end of March next year. The economic growth forecast was also pulled lower for this year. 

It is true to say that European countries have extended their lockdown this year, which wasn’t the plan of action last time.. The ECB wasn’t aware of it at that time. All these restrictive coronavirus extensions have been made due to the new variant of coronavirus. Having said that, the current lockdown extensions haven’t had a major influence on the European economic numbers. The ZEW and PMI numbers are holding up so far. But, there is no doubt that we are heading towards a double-digit recession in Europe because of new restrictions. However, there are chances that this recession may be more of a technical recession, as the future path of economic recovery looks more clear and less full of obstacles. 

So, in today’s meeting, market players have positioned themselves for no action from the ECB and less jawboning. This is despite the fact we have seen tremendous strength for the Euro over the course of the last few weeks. 

The New Variant of Coronavirus Is Not a Concern 

We had another important piece of news on the coronavirus front yesterday, which has given much more confidence to investors and traders. The Pfizer-BioNTech vaccine is likely to be effective against a new variant of coronavirus, a study done by the company confirmed yesterday. Remember, the new variant found in the U.K. is highly transmissible, and there were concerns that the current vaccines may not be highly effective. But now that we have a study that confirms that vaccine will be effective is a piece of major news for investors and traders. Perhaps, there are good chances that we will not see a further national lockdown as they are having a profound impact on the global economy.