This week saw the main reflation narrative continue to support risk assets in a calendar light week. The reflation narrative is that there is a global synchronised recovery underway supported by vaccine hopes to overcome COVID-19 infections. This helps commodities and equities higher. This narrative helped the S&P500, Nasdaq, and Dow Jones to new highs this week. As long as interest rates remain low, Govern-ment’s provide fiscal support, and the vaccine proves effective against COVID-19 expect risk assets to find buyers on dips lower.
Other key events from the past week
- NZD: Inflation rises, Feb 09. Inflation expectations came in higher at 1.89% vs 1.59% prior increasing the more optimistic outlook for New Zealand. This, along-side the reflation trade, should support NZDUSD in the coming week.
- USD: Inflation is stable, Feb 10. A key element of recent USD strength has been on the hopes of a faster than expected US recovery. With core inflation printing at 1.4% y/y as expected this means the medium-term USD bearish picture stays in place. The weaker dollar also helps support commodities.
- BTCUSD: All time highs, Feb 03. Bitcoin hit all time highs this week as Tesla announced $1.5 billion worth of Bitcoin purchases. This move by Tesla is the latest in big names that have helped endorse the digital currency. Is $50,000 the next target? Will more fortune 500 companies start investing in Bitcoin?
Key events for the coming week
- GBP: Inflation expectations, Feb 17. The Bank of England pushed back against negative interest rates at their last rate meeting. Any strong moves higher in inflation will bring forward early bets on interest rate rises and further support the GBP this week.
- AUD: Employment data, Feb 18. The RBA surprised markets recently and increased bond purchases by AUD $100 billion. Strong employment data may show that move was unnecessary and boost AUDJPY higher.
- EUR: PMI prints, Feb 19. Eurozone PMI data will be important for gauging euro-zone confidence as vaccination rollouts are slow in Europe. Has this weighed on sentiment? PMI data will be key this week for the EURGBP.