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Week Ahead: Coronavirus Daily Cases and Bond Yields Both Moving Higher!

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Fundamental analysis of Forex market

Headlines galore! The UK is back in lockdown as the coronavirus has overtaken the country and the word “variant” is now in everyone’s vocabulary.  Democrats in the US now control the Senate with their victories in Georgia. President Trump attended a support rally on Wednesday, which ended with an assault on the Capitol building.  In addition, US and Canadian jobs data were both negative.  But none of these mattered to the markets.  Seemingly, beginning of year flows led to higher stock markets and higher interest rates last week, as US 10-year yields moved above 1% for the first time since the pandemic began.  There will be more headlines this week as the coronavirus continues to attack.  Powell speaks towards the end of the week and although it’s a light economic data week, it is the beginning of earnings season!!

The coronavirus is rearing its ugly head again, particularly in the UK. There were 1,325 coronavirus related deaths on Friday alone, a new record!  This may be the result of a variant of the coronavirus that is making its way around the world!  The variant is said to be more contagious (but less lethal) than the original virus.  The UK is in lockdown and shut once again until mid-February.  Tokyo has also gone into a State of Emergency due to covid (although restrictions are not as severe).  In addition, Germany is looking to restart lockdowns into month end.  Additionally, the US had over 4,000 daily deaths for the first time since the beginning of the pandemic as vaccine distribution is much slower than anticipated.  However, the markets are looking towards the spring and the hopes that the vaccines will come sooner than later.  Stock markets around the world have pushed to new highs as hope overtakes fear to start the new year.  Vaccine distribution must be closely watched this week. Additional distribution setbacks or news of immunities to vaccines could send stocks lower and the US Dollar higher.

US 10-year yields rose as high as 1.124% this week.  The high on March 19th was 1.276% during the extreme volatility at the beginning of the pandemic.  From there, yields sold off aggressively as the world shut down and monetary stimulus hurled at us.  Yields fell to a low of 0.5% in August.  The 1% level was tested multiple times.  However, this week, the first week of the year, investors came in selling bonds and buying stocks.  This week alone, 10-year yields moved from 0.905% to 1.124%, a gain of 21%!  So, are large investors looking past the fiscal stimulus and the coronavirus?  Interest rate movements would suggest they are looking for higher inflation. Not to mention that in Friday’s payroll data, the average hourly earnings were +0.8%, the strongest since April. Inflation data this week and Powell’s speech on Thursday will be eyed for hints of the FOMC’s next steps.  They meet again on January 27th.

This week begins earnings season!  Although there aren’t many releases, there are some notable companies to watch.  They include JD, DAL, ASC, PSN, WMH, BLK, TSCO, ABF, TW, JPM, C, WFC, and PNC.

Although this is a light data week, there are a few notable economic data releases.  In addition to the previously mentioned inflation data and Powell speaking engagement, other important economic data is as follows:

Monday

  • Australia:  Retail Sales Final (NOV)
  • China: Inflation Rate (DEC)
  • China: PPI (DEC)

Tuesday

  • Australia: Westpac Consumer Confidence (JAN)

Wednesday

  • EU: Industrial Production (NOV)
  • US: Inflation Rate (DEC)
  • US: Beige Book
  • Crude Inventories

Thursday

  • Japan: Machinery Orders (NOV)
  • Japan: PPI (DEC)
  • Australia: Building Permits Final (NOV)
  • China: Trade Balance (DEC)
  • Germany: Government Budget (2020)
  • US: Initial Jobless Claims (week ending January 9th)
  • US: Fed Chairman Powell speaks

Friday

  • Australia: New Home Loans (NOV)
  • China: House Price Index (DEC)
  • China: Vehicle Sales (DEC)
  • China: FDI (YTD) (DEC)
  • UK: Trade Balance (NOV)
  • UK: Industrial Production (NOV)
  • UK: Manufacturing Production (NOV)
  • EU: Trade Balance (NOV)
  • US: Retail Sales (DEC)
  • US: PPI (DEC)
  • US: NY State Manufacturing Index (JAN)
  • US: Industrial Production (DEC)
  • US: Manufacturing Production (DEC)
  • US: Michigan Current Consumer Sentiment Prel (JAN)

Chart of the Week:  Daily US10 Yields

Source: Tradingview, FOREX.com

As mentioned earlier, US 10-year yields had a large move this week.  After reaching a high on March 19th, yields moved down to a low of .5% in August.  They began moving higher in a channel and first tried to take out the 1.00% level in early November.  From then, it tried several more times, while moving sideways throughout December.  This week, the start of the new year, bond sellers came in aggressively and finally pushed 10-year yields through the 1.00% level (green line) towards resistance at the top of the upward sloping channel line near 1.124%.  (Bonds and yields move inversely to one another.)  The RSI has moved into overbought territory as well at 75.12, indicating yields may be ready for a pullback.  Support for yields is back at the 1.00% level, then the bottom channel line near 0.905%.  Yields closed the week near the channel line resistance of 1.124%. Above there, yields can move all the way back to the March 19th highs 0f 1.276%.

Although this week may be slow for economic data, there will continue to be headlines flying around.  As with last week, headlines that may be important to some, may not be as important to the markets as a whole.

Remember:  the market is always right! 

Have a great weekend and please remember to always wash your hands!