European and US stock futures are trading flat as investors continue to monitor the challenges of vaccine shortfall in Europe. More importantly, they will also have to endure more pain due to the third lockdown in Europe. Having said that, there is some optimism that the vaccine supply chain is ramping up, and as long as the virus spread can be controlled, things can get back on track after a small speed bump.
The entire world has been facing the misery of coronavirus for over a year, and the reality is that traders cannot wait for economic activity to return to its pre-Covid level. A one-month delay in opening the economy may not change fundamentals dramatically; lawmakers need to make sure that they do not let the situation get out of control.
Back in the UK, the Chief Economist believes that the UK’s economy could see some serious momentum if consumers begin to spend only a small portion of their savings which they built over the last year. His optimistic outlook about the economy has failed to gather any interest among forex traders. They are still selling the currency. The Sterling-dollar pair has been under selling pressure for the past few days, and the CPI data released yesterday failed to lend a helping hand to the currency. Basically, traders see blood on the street, and it is likely that we may see the currency falling all the way to the 1.35 mark, which is the next psychological support zone. Later today, we do have the UK CPI Retailing Reported Sales number, and the forecast is for -37, which is much better than the previous number of -45.
Boris Johnson could also be announcing a tougher border policy in order to keep the new strain of virus out of the country. The aim is to keep the infection rate low in the UK to avoid another lockdown. Over 60% of the population is expected to have their vaccine by May, and airlines like Ryanair are betting for more short-haul travel to thrive in summer.
As for the commodity trading markets, the gold price is struggling to find any direction as the dollar index continues to inch higher. The strength in the dollar index is keeping pressure on the gold price. Treasury Secretary Janet Yellen said in her testimony yesterday that the US economic conditions are improving, and US banks hold healthy balance sheets to the extent that they can resume their dividend. Of course, from the traders’ perspective, that is another risk-on event, and it is likely to fade gold demand further. However, as long as the gold price continues to trade above the 1,700 level, the gold price is likely to stay out of trouble.
Yesterday, we saw the five-year notes auction attracting average demand in the Treasury market, a sign that the market may be stabilising (more on how to trade bonds). This is certainly a sign of confidence because no one wants the yields to revisit their one-year high as they created major chaos in the market.
Another reason for being optimistic about this is that traders had many concerns about the Treasury market when the Fed announced they were shutting the door on the SLR regulatory exemption, which allowed banks to buy more debt.
Today, we have the seven-year auction, and the expectations are that this will go without a hitch. Although traders are likely to remain on their toes, the same tenor was no short of disaster during its last auction.