Equities started following November’s gains this week as vaccine optimism and US stimulus hopes continued to boost risk assets. Upticks in stocks, commodities, and pro-cyclical growth currencies like the AUD and the NZD all kept moving higher at the start of the week on the positive sentiment. Some nations also started to see the roll-out of their first COVID-19 vaccines. However, be aware that it is not yet known if a vaccinated individual can still pass on the virus. So, it may not be until summer next year that life starts to feel normal again without the risk of lockdowns. However, risk assets have been rising on anticipation of a ‘normal’ 2021 and dips are being bought. Will that continue?
Other key events from the past week
- US stocks climb: All-time highs, December 08. Midweek, US stocks markets made all-time highs in the Dow Jones, Nasdaq and S&P 500 on anticipation of a US stimulus bill. How far can these gains continue before a deeper pullback?
- GBP: Brexit headlines, December 09. The GBP was pushed and pulled all week on Brexit headlines. If there is a no-deal Brexit, expect heavy selling in the GBP because investors have been buying the GBP since June expecting a deal.
- ECB: Interest rate decision, December 10. Rates were kept unchanged. PEPP purchases were increased by €500 billion and extended through to March 2022, which came as a surprise as the end of 2021 was expected. There were no other surprises in the statement.
Key events for the coming week
- USD: Interest rate decision, December 16. The Federal Reserve meets for the final time in 2020 and analysts expect some kind of further easing. However, will it be enough to please markets or will it disappoint and send US stocks lower?
- EUR: Flash PMIs, December 16. Flash PMIs next week will indicate how recent European lockdowns have impacted European sentiment. Will vaccine optimism support European PMIs or will they turn and weaken the Euro?
- S&P500: Santa rally ahead? December 14. Over the last 70 years, the S&P 500 has gained between December 15 and 31. It has risen in 55 out of those 70 years. The largest gain was a huge +8.49%. Will vaccine optimism this year help investors to repeat the seasonal pattern?