Wednesday, 27 January 2021 / Published in Global Finance

The renewable energy sector was one of the best investment opportunities in 2020, as the new US administration plans to re-join the Paris Climate Accord and make the country a global leader on climate change policy. 

Joe Biden plans to make the US a 100% clean energy economy with net-zero emissions by 2050, while he also plans to decarbonize the US power sector by 2035, utilizing renewable energy solutions.

The entire auto market is pivoting from gasoline-powered cars to electric cars, and analysts believe that we are still in the early stages of this seismic shift as the electric car industry is young and growing quickly.

Electric Vehicle penetration of total passenger car sales measured less than 5% in 2020, while that share is expected to rise at 20% in 2025 and up to 50% in 20 years. Traditional car companies such as Volkswagen and Ford have started getting involved in the sector to match the increasing demand.

The large growth rate in the Chinese and European EV markets and the favourable government policies have made electric vehicles one of the hottest topics on the financial markets in 2020. 

Tesla has become the world’s largest automaker in the world with a market capitalization of $800 billion, after its share skyrocketed by 800% last year, making its founder, Elon Musk the world’s richest man in 2021. 

Tuesday, 26 January 2021 / Published in Equities & Indices

Global financial markets slightly fall in Tuesday trade, retreating from their record highs over persistent anxieties about possible barriers to Joe Biden’s $1.9T fiscal pandemic-relief stimulus and the rising Covid-19 cases around the world.


Uncertainty over the time and size of the US stimulus package:

US futures moved slightly lower on Tuesday amid softer risk appetite among investors over disagreements on President Joe Biden’s $1.9T stimulus package. The market worries about the timing of the package to be agreed as the Congress members debate about the size of the relief bill needed to stimulate the US economy. Even the Democratic Majority Leader Chuck Schumer notified yesterday that a complete bill could be four to six weeks away.


Covid worries and fresh lockdowns:

The market participants concern about the growing number of Covid cases around the world, especially in China. Many governments in Europe and Asia including China and Hong Kong have set additional strict lockdown measures to limit the spread of the new fast-spreading variant virus, increasing the economic damage in the local markets.


US markets:

The tech-heavy Nasdaq Composite rose 0.7% on Monday, hitting an intraday fresh all-time high of 13.700 before closed at 13.635, lifted by robust gains in some tech giants such as Apple, Microsoft, and Facebook.

The S&P 500 index also closed at record highs of 3.855, up 0.4% ahead of corporate earnings, while the industrial Dow Jones index slightly dropped 0.1% to 30.960 amid losses in Boeing and cyclical sectors over stimulus worries.


Asia-Pacific Markets:

Stocks in Asia retreated nearly 2% from their record highs in Tuesday trade following the overnight losses on Wall Street amid a general risk aversion sentiment and the geopolitical tension in the region.

The Hang Seng index in Hong Kong led to losses in Asia by 2.4%, following by 2% losses in China’s mainland indices after the boiling tensions in the Taiwan Strait and the South China Sea. Hence, South Korea’s Kospi followed with 2.2% losses, Japan’s Nikkei 225 slid 1%, while markets in Australia and India are closed for public holidays.


Commodities-Forex and Fed’s 2-day policy meeting:

WTI and Brent crude oil prices fell 1% on Tuesday morning to $52 and $55.50 per barrel respectively after China (the world’s largest fuel consumer) reported rising new virus cases and fresh restrictions, causing doubts over petroleum demand recovery in the country.

Gold and Silver prices rise above $1.850/oz and $25.50/oz respectively, gaining support from the falling 10-year US Treasury yields near 1.03%, despite the US dollar strengthen.

The DXY-US dollar index against major currencies rises to 90.50 while the EUR/USD retreated from the resistance level of 1.22, finding support near 1.21.

The recent strength in the safe-haven greenback came after the risk aversion mood over the speed and size of Biden’s stimulus bill, and ahead of the Federal Reserve’s two-day policy meeting, which is scheduled to begin later in the day.

Investors expect FED to maintain its dovish monetary policy and keep the zero interest rates for a longer time to help the US economy mitigate the pandemic-led damages.

The dovish Fed is a bearish signal for the US Treasury yields and US dollar while it is a bullish catalyst for the non-yielding gold and silver precious metals and other dollar-denominated commodities.

Friday, 22 January 2021 / Published in Analysis

Cryptocurrency market has witnessed a massive selling pressure in the past few days, with Bitcoin price falling below $29.000 for the first time since Jan. 05, 2021, on growing concerns over regulation attention and a widespread profit-taking after the extraordinary rally.


Regulation attention from US Treasury and ECB:

The recent price rally and enthusiasm in the crypto market have lost some steam after Janet Yellen’s comments, President Joe Biden’s pick to head the US Treasury, during a US Senate hearing on January 19, 2021.

Yellen expressed concerns that cryptocurrencies could be used to finance malign and illegal activities, adding that she is intended to work closely with the Federal Reserve Board and the other federal banking and securities regulators on how to implement an effective regulatory framework for Cryptocurrencies and other fintech innovations. That followed a call last week from European Central Bank President Christine Lagarde for global regulation of Cryptocurrencies.


Bitcoin and Ethereum sell-off:

The price of the world’s most popular cryptocurrency initially lost as much as 17% to $28.800 on Thursday night, before bouncing back between $30.000-$32.000 on Friday. Bitcoin is trading 30% below its record high of $42.000 posted at Jan.08, 2021.

Ethereum, the second most valuable digital currency after Bitcoin, dropped even more yesterday, declining 22% toward $1.040, only three days after posting a fresh all-time high at $1.440.

The price of Ethereum, which was founded from the Russian-Canadian programmer Vitaly Buterin back in 2014, entered 2020 at near $120 per coin. The popularity of Bitcoin and the massive inflows from institutional investors have helped Ethereum to post a parabolic rise above $1.000 at the end of 2020.


Rocky start of 2021:

While the 2020 was a great year for Cryptos with lots of bullish developments, tremendous price rallies up to 300%, popularity, and media coverage even as they still have limited real-world usage, however in the first 3 weeks of 2021, the bears have taken control, bringing lots of pressure, huge price swings and volatility.

The recent two-day sell-off wiped out more than $100 billion from the crypto market capitalization, which it now stands at around $900 billion, while the Bitcoin’s dominance rate is 65%.

Thursday, 21 January 2021 / Published in Equities & Indices

Global equities hit fresh record highs on improved risk sentiment, gaining support from Netflix’s robust corporate earnings, Biden’s inauguration, and the falling US dollar-Yields.

Biden’s inauguration-A new American chapter:

The 78-year-old Democrat Joseph Robinette Biden Jr. became the 46th president of the United States on Wednesday, while Kamala Harris became the first Black American woman to become vice president.

The “Biden-Harris” inauguration has completed the most violent power transfer in recent American history, exactly two weeks after a group of ex-president Trump’s supporters stormed into the Capitol Hill building and leaving five people dead.

On top of that, Trump became the first president since Andrew Johnson in 1869 not to attend his successor’s inauguration, ahead of his second impeachment trial in the coming weeks.


Market Reaction:

All US stock indices extended the recent rally by ending Wednesday’s trading session at fresh record highs. The Dow Jones rose 0.83% to 31.188, almost 100 points above its previous all-time high. The S&P 500 was up 1.4% to 3.851, the Nasdaq Composite gained 2% to 13.457, while the small-cap benchmark Russell 2000 popped 0.4% to 2.158.

The share of the streaming giant Netflix hit a record high of $586, up 17% yesterday, after it reported strong subscriber growth and share buybacks. Also, the shares gained an additional boost after the company announced that they would no longer need to borrow billions of dollars to finance its TV shows and movies.

Asian-Pacific equities advanced on Thursday morning, following the overnight gains in Wall Street. Shares in Australia edged higher by 0.7% as the local unemployment rate came in at 6.6% in December, below expectations for 6.7%. China’s Shanghai Composite rose 1.3%, Japan’s Nikkei 225 ended up 0.80%, while Hong Kong’s Hang Seng index settled 0.20% higher.


Forex market:

Falling Treasury Yields weigh on the US dollar

The 10-year US Treasury yields edged lower to 1.08% as investors expect Federal Reserve to continue with its dovish monetary policy and not taper until the end of the year.

The recent back foot in yields, together with the market risk appetite, and dovish Fed monetary policies have weighed on the greenback. The DXY-US dollar index, which tracks the greenback against a basket of major currencies, dropped below 90.20, only a few days after it reached 91 levels.

The optimism around the massive $1.9T US fiscal package has sent investors away from the safe-haven currencies such as the US dollar, Japanese Yen and Swiss Franc and into more growth-led currencies such as Euro, Sterling, and the commodities-led currencies of Canadian, Australia, and New Zealand dollars.

The EUR/USD pair advances back above 1.2140, the USDJPY slips near 103.400, the USD/CAD falls to a 3-year low of 1.2630. Meanwhile, the NZD and AUD extend gains against the greenback to 0.722 and 0.777 respectively on improved Aussie unemployment rates and higher commodities prices.


Commodities:

Energy:

WTI and Brent crude prices advance near $53 and $56 per barrel respectively, over a growing optimism that the massive fiscal and monetary pandemic-relief packages will improve the global economic growth and hence the demand for petroleum products.

Furthermore, crude prices took an extra boost after China, the world’s larger crude consumer, shown an increase in fuel demand by 3%, a record high in the pandemic-shaken 2020.


Precious Metals:

Gold and Silver have gained traction recently, climbing to weekly highs of $1.870/oz and $26/oz, as they considered the ideal hedge against inflation and US dollar devaluation amid the $1.9T US stimulus.

Hence, the precious metals gain support from the dovish Fed, while the lower Treasury yields reduce the opportunity cost of holding non-yielding gold and silver metals.

Wednesday, 20 January 2021 / Published in GEOPOLITICAL

Can the rollout of a COVID vaccine be a sell the news event? Probably not, because central banks will continue to offer liquidity support for the foreseeable future. Even after the pandemic ends, the liquidity created will remain in the system.

We know economies will experience a burst of growth when the COVID pandemic ends. Partially because of pent-up demand, Partially due to an increase in productivity (gained during the pandemic), and lastly growth due to the return of sectors like hospitality.

However, with 93% of global economies struggling and markets at all-time highs, the question is, will the return to normality be a sell the news event?

The answer is we don’t know, however as we have said several times, higher equity valuations are also a product of the liquidity created by central banks. But please note this liquidity will not be taken out of the market. Mr Powel learned this the hard way, when a simple mention of unwinding the Fed’s balance sheet sent markets crashing back in late 2019.

As such, while we are vigilant of a sell the news COVID vaccine event, at the same time we find it difficult to see such a scenario. One the one hand liquidity support will continue for the foreseeable future, and even after the crisis ends, this liquidity will never be taken out of the market.

Having said that, a correction is always possible for a variety of reasons, simply because markets correct from time to time.

Wednesday, 20 January 2021 / Published in GEOPOLITICAL

China’s equity indices advance near all-time highs after the economy was reported to have grown 6.5% in the fourth quarter of 2020 compared to a year ago, beating expectations of 6.1%.

The Chinese economy was surprisingly resilient during 2020, expanding by 2.3% while the rest of the world has been struggling by an ongoing financial recession caused by a renewed pandemic outbreak.

The higher-than-expected GDP growth has been primarily driven by China’s rapid containment of the Covid-19 virus, the massive fiscal and monetary stimulus plans, the resilient supply chains, the growth in retail consumption, and stronger demand for Chinese exports.

China has had a remarkable V-shaped recovery last year, returning to growth after a 7% contraction in the first quarter propelled from the lockdowns in the economic activity to contain the virus.

Furthermore, the Chinese Yuan appreciated to 6.5 against the dollar, its highest level since 2018, supported mainly by the trade surplus and the rising exports thanks to surging demand for face masks and other goods linked to the Covid-19 crisis.

Friday, 15 January 2021 / Published in GEOPOLITICAL

Global stock markets were on hold on Friday morning, digesting the details of the proposed $1.9T US stimulus plan by President-elect Joe Biden and ahead of President Trump’s potential impeachment trial.


Joe Biden’s $1.9 trillion pandemic-relief package:

President-elect Joe Biden announced the details of a $1.9 trillion pandemic-relief package on Thursday night. The proposal, called the “American Rescue Plan” would be the first of two major spending initiatives Biden will seek in the first few months of his presidency in 2021.

The second bill, expected in February, will deal with Biden’s longer-term goals of creating jobs, reforming infrastructure, combating climate change, and advancing racial equity.

The “American Rescue Plan” was designed to aid additional support into pandemic-damaged local businesses and US families until the Covid-19 vaccine is widely available. Some of the major proposals of the bill include direct payment of $1,400 to most Americans, bringing the total relief to $2,000, including December’s $600 payments together with an increase of the per-week unemployment benefit to $400 until September and others.

Political leaders in Washington from both Democratic and Republican parties offered initial support for Biden’s stimulus packages, showing a collaborative stance after the deadly riots in Capitol Hill last week and ahead of President Trump’s potential impeachment trial.


Trump’s Impeachment:

President Donald Trump became the first US president ever to be impeached twice, after the U.S. House of Representatives passed a single article of impeachment on Wednesday, accusing him of high crimes and misdemeanours for inciting an insurrection in the U.S. Capitol last week while Congress counted Biden’s electoral win.

The second impeachment trial for President Donald Trump will likely pull into President-elect Joe Biden’s term, which starts on January 20, 2021. A possible Senate vote to convict Trump would prevent him from becoming president again in 2025.


Market reaction:

All three major US stock indices ended Thursday’s session slightly lower but near their recent all-time highs, as investors are concerned over the cost of the relief package and the possible taxes on tech names, despite the prospects for an economic recovery.

The benchmark 10-year Treasury yield rose to near 1.12% while the DXY-dollar index against major peers climbed at 90.50 on Thursday, gaining support from the higher inflation expectations and massive U.S. fiscal stimulus.

However, their recent bounce in Yields and greenback lost some steam after Federal Reserve chairman Jerome Powell said the U.S. central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term.

Wednesday, 13 January 2021 / Published in Commodity Insights

Crude oil prices rise to pre-pandemic 11-month highs, gaining support from Saudi Arabia’s 1 million bpd supply cuts, together with the fall of the US dollar, the oil demand recovery bets, and the lower crude inventories.

The US-based WTI crude contract extended a recent rally towards $54 per barrel level on Wednesday morning, while the international Brent crude contract rose as high as $57.50 per barrel, prices not seen since February 2020 and before the start of the pandemic.

The rally in the crude oil contracts continued into the energy stocks and ETFs, offsetting the surging Covid-19 cases around the world. Energy names such as Exxon Mobil, Valero, Conoco, Phillips 66, and the leading energy ETF “USO” have gained more than 50% since the recent lows in October, with some of them recovering almost all the pandemic-led losses.


Saudi Arabia’s supply Cuts:

Energy investors increase their bullish bets on crude oil contracts, amid expectations that the supply cuts by OPEC members will continue into 2021.

Saudi Arabia which is the de-facto leader of the OPEC group, has surprised the energy market by unilaterally deciding to cut its crude output by an extra 1 million barrels per day for February and March. The Arab country decided to tighten its crude supplies until the end of Q1 2021, to prevent a glut in the global oil storages caused by the lower demand for petroleum products amid the resumed global lockdowns to curb the spread of the second Covid-19 wave.


Mass vaccinations increase the hopes for oil demand recovery:

Herd immunity would be an important price catalyst for the oil market. Investors have already started positioning their funds into energy stocks and ETFs, anticipating that a successful roll out of a vaccine around the world, would reduce the pandemic-led global demand losses for jet and gasoline fuels in 2021-2022.

Energy prices have also gained support from the prospects of a massive US fiscal stimulus that would recover the industrial activity and hence the demand for petroleum products.

The recent fall of the US dollar to 3-year lows makes the dollar-denominated crude oil products cheaper for buyers with foreign currencies.

Finally, oil prices received an extra boost on Tuesday night, after the API crude oil inventory report for the US dropped by 5.8 million barrels last week to around 484.5 million barrels, surpassing analyst’s expectations for a fall of 2.3 million barrels.

Wednesday, 13 January 2021 / Published in Analysis

The US dollar has been the top performing currency since last week, gaining support from a spike in US Treasury yields, the Biden’s stimulus agenda, hopes for US economic growth and expectations for higher inflation.

The greenback continues to recover from 3-year lows after the Democratic party won control of the US Senate last week, which propelled expectations for bigger fiscal stimulus packages to shore up the US economy. 

President-elect Joe Biden has promised further pandemic-relief fiscal spending following the disappointing non-farm payrolls for December, financed with more Treasury debt and taxes.

The 10-year Treasury bill crossed the 1.10% yield level for the first time since March, sparking speculation that a long period of interest rate compression could be reversing.

The dollar valuation has improved against major currencies since the US real yields are rising faster than global counterparts together with the shift by the Federal Reserve to allow higher inflation.

The surge in bond yields and market inflation expectations have been enough to pause the bearish bets against the greenback. The dollar index rose near the 91 level, after dropping as low as 89 last week, which was 12% lower from March highs. 

Friday, 08 January 2021 / Published in Equities & Indices

Global equities hit another fresh record high on Friday over a growing optimism for a stronger economic recovery around the world despite the political unrest in the United States.

All major US stock indices such as Dow Jones, S&P 500, Nasdaq 100, and Russel 2000 rose to all-time highs on Thursday, while European and Asian equities hit fresh multi-year highs on Friday morning, after the US Congress confirmed the election of Joe Biden as president, removing some political risk from the financial markets.

The inauguration of Joe Biden as the 46th president of the United States will mark the beginning of the four-year term of Joe Biden as president and Kamala Harris as vice president. A public ceremony is scheduled for Wednesday, January 20, 2021, at Capitol Building in Washington, D.C.

Investors are optimistic about the so-called “blue wave”, expecting that the new political landscape under Joe Biden’s administration together with the Democratic-controlled Congress would pass larger fiscal stimulus to support the pandemic-damaged US economy.

Equities got an extra boost after the Institute for Supply Management said its index for nonmanufacturing activity in the U.S. rose to 57.2 in December from 55.9 in November.


Capitol Hill chaos:

Investors were shocked on Wednesday after a group of President Trump’s supporters stormed into the Capitol building, causing Congress to suspend proceedings to confirm the election of Democratic Joe Biden as the next president of the United States.

Protesters invaded the halls of Congress and Senate Chamber, shouting “Trump won that election!”, while the members of Congress and Senate staffers were ordered to take shelter in the building. Unfortunately, 5 people died during the riot, including a policeman, a woman who was shot by police inside the Capitol building, and 3 other people who died from medical emergencies.


Market Reaction:

The Dow Jones Industrial Average added 211 points, or 0.7%, to 31,041.13, surpassing the 31.000 level for the first time, while the S&P 500 climbed 1.5% to 3,803.79. However, it was Nasdaq Composite that outperformed the market, advancing 2.6% to 13.067, and posting its first-ever close above the 13.000 level.


Asian Equities:

Asian stock markets hit fresh multi-year highs following the overnight rally in Wall Street. Japan’s Nikkei 225 index ended Friday morning at 28.138 points, up 1.75%, posting its higher closing since 1990.

Meanwhile, South Korea’s Kospi index jumped 4%, boosted after a local media reported on a possible deal between tech giant Apple and South Korean automaker Hyundai Motor on developing electric vehicles and batteries. Hyundai Motor reported that it has early talks with Apple but without any decision yet, while its share price skyrocketed by 23%, pushing S. Korea’s auto sector to finish the day with more than 10% gains.