About market optimism and why it is still premature

17 ธ.ค. 2020

Financial markets were full with optimism yesterday. Bitcoin surpassed the 20K mark, European indices (in particular, the German DAX) reached their highest levels since February 2020, US stock indices stormed historic highs, and oil reached the highest marks since March 2020.

What made the participants of the financial markets so happy? To start with, general optimism has been a topic that has dominated the financial markets since late spring. So, in general, nothing fundamentally new has happened. In addition, the Moderna vaccine must be approved in the United States today, which continues to promise a bright future for the world as a whole.

The data on business activity in the Eurozone, the UK and the US for December were far from disappointing. All this was superimposed by comments from EU officials about a progress in negotiations with the UK.

In addition, following the meeting of the Federal Reserve Open Market Committee, the US Central Bank upgraded its forecasts for the growth rate of the US economy in 2020 (strange, but true). The FED now expects the economy to contract 2.4% in 2020, compared with a previous forecast of a 3.7% contraction. In 2021, the Fed expects the economy to grow 4.2% and 3.2% in 2022, up from previous estimates of 4% and 3%, respectively. The rates were left unchanged, but made it clear that their ultra-low values are for a long time (at least until 2023).

As you can see, in general, there were enough reasons for optimism. On the other hand, there are many reasons for concern. US retail sales data reminded that the pandemic and lockdowns have a very concrete price to pay: US retail sales fell 1.1% in November, the first significant decline since April. Pandemic in the United States, despite the start of vaccination, does not think to subside - yesterday almost 250K new cases were detected and a new record should be expected by the end of today. In the world as a whole, the situation is even worse.

The question of stimulus in the US is still open, and with Brexit situation is still not clear, as UK officials said key disagreements still exist. So, everything is far from so simple.

Yesterday data from the EIA showed a decline in US oil stocks by 3.13 million barrels, which, however, was slightly less than analysts' expectations and in any case pales against the background of an increase in stocks by 15 million barrels last week.

Today promises to be no easier than yesterday. In addition to the already mentioned possible approval of a vaccine from Moderna, the markets are awaiting a decision from the Bank of England on the parameters of monetary policy in the UK, data on jobless claims in the US will be published, as well as statistics on the housing market in the US.