Greenback Gaining, Global Markets Uncertain
The U.S. Dollar is having a moment of strengthening based on worries about the ongoing health crisis that has brought along new restrictions as infections in Europe particularly keep getting worse.
Yesterday was the best performance for the buck since September. Pessimism in Wall Street and strange retail action on specific companies’ stock values is causing headaches as the economic outlook seems out of reach at the moment. Vaccine delays and disappointing earnings for big companies like Tesla are starting to sour the rally that equities have been enjoying based on the assumption that there is plenty of stimulus coming, but traders and investors now seem to want a clearer path to combating the existence of a disease keeping all economic momentum halted.
Jerome Powell, head of the Fed, spoke yesterday during his press conference and expressed this sentiment of not just cautious optimism, but one of facing the reality that economic progress will not be significant for a while until herd immunity is achieved. Certainly, the Fed is not going to step away from its aid, but it is useless presently without expenditures nor confidence in going outside.
We shall see if the buck continues to rally after Q4 data revealed this morning less advancement than expected in Gross Domestic Product growth and Consumption. The former came in slightly lower than expected a 4.0% under the 4.2% predicted while Consumption came in at 2.5% under the estimated 3.1%. A measure of inflation the Fed tends to prefer in Core PCE (personal consumption expenditures) did manage to go higher to 1.4% over 1.2%. Although Jobless Claims last week grew by as much as expected, Continuing Claims came in lower, not a bad sign.
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The Euro is struggling to find much in terms of good developments as its outlook right now looks pretty dim. An ongoing battle with Astra-Zeneca over vaccines that were supposed to have already been handed out is highlighting the issues of Brexit as the company refuses to take doses from its U.K. facilities to the EU bloc. The lack of cohesive cooperation in fighting COVID has been astonishing. Along with poor overall health, the IMF only downgraded the growth for Europe because it sees the region as lacking in comparison to Asia and North America.
China is already seeing growth at pre-COVID levels, the U.S. is expected to get back on track by end of 2021, but EU estimates have the region climbing to pre-virus levels until end of 2022. There is plenty of time and narrative that could shift gears, but this moment serves to look at what is making the shared currency unstable. Italians are appalled at the timing of the government alliance breaking and their Prime Minister quitting to try to maneuver another power grab.
The Mexican Peso has been incredibly volatile and has fallen by 4.0% in just the past week as bad news items pile up for our southern neighbor. One thing is leadership, now stuck in a hospital as President Andres Manuel Lopez Obrador battles COVID-19 himself. His management has been highly criticized as his infection represents just how common as well as deadly this disease has been in Mexico. Iron ore and their commodities are facing downward pressure as the globe starts doubting how quickly we can overcome all this mess.