Once again the main reflation narrative continued to support risk assets in another calendar light week. Low interest rates, high levels of quantitative easing, governments ready to support economies with fiscal stimulus and more and more people receiving vaccines all feed into a ‘the world is growing again’ narrative. The key event this week to watch going forward is the rising US10 year yields. If US yields rise too far, too fast, this is liable to prompt a sell-off in US equities. US President Biden aims to vaccinate every American by the end of July. So a fast, vaccine driven, US recovery could result in further dollar gains, so expect dollar moves (alongside US10 year yields) to gain attention in the coming week.
Other key events from the past week
- AUD: RBA Minutes, Feb 16. The RBA surprised markets recently and increased bond purchases by AUD $100 billion. The minutes last week showed that the board is really trying to tackle AUD strength to protect its export market. It may be an impossible task as there are strong market reasons for a higher AUDJPY.
- EUR: German ZEW sentiment, Feb 16. A surprise this week was the German sentiment reading that came in at 71.2 vs 59.6 expected. This shows the Ger-mans are focusing more on vaccine optimism and less on present lockdowns.
- BTCUSD: Crypto fever rules! Feb 16. BTCUSD hit $50,00 for the first time this week as institutional demand increased the market capitalisation to $1.5 trillion. HYCM blog readers would have been alerted to the strong fundamentals in Bitcoin way back in October last year. See here. More buyers on dips ahead?
Key events for the coming week
- NZD: Interest rate, Feb 24. The RBNZ meets next week and no change in interest rate is expected. However, it will be all about the statement. Any indication that the RBNZ is bringing interest rate hikes forward in time will boost the NZD. You can catch up on all the latest central bank positions here.
- Gold: Dragged lower, Feb 18. Gold has been dragged lower recently by the rising US 10 year yields. Any further gains in US 10 year yields and expect Gold to break out lower of its recent range beneath $1780.
- Vaccines: Roll out speed, Feb 26. The faster the vaccine roll out across the world the more enthusiasm we will see for the reflation trade. This supports risk commodities like copper to find buyers on any dips.