DUCKS IN A ROW FOR EQUITY MARKETS
The main equity indices had a positive week on the whole despite a resurgent risk-on mood, arising in tandem with the threat posed by new coronavirus variants. In fact, everything is coming together for financial markets at the moment, propped up by copious amounts of liquidity.
Progress in vaccination campaigns, strong quarterly corporate results and the imminent launch of the US fiscal stimulus package have fuelled investor optimism. Macroeconomic indicators have also been encouraging. The Milan stock exchange jumped by 7%, spurred on by the job given to Mario Draghi, former governor of the European Central Bank (ECB), to form a new government in Italy.
Joe Biden said it: America is back! Confidence has been restored in no time, quickly overcoming doubts about the new president and the faux pas of underestimating the power of small-time traders, huddling together in an online forum, to disrupt financial markets. The frenzy caused by the rush of retail investors into heavily discounted securities shorted by hedge funds has now subsided. In response, Treasury Secretary Janet Yellen brought together financial regulators to discuss the surge in volatility caused by this herd behaviour with the aim of ensuring that financial markets can function properly and investors are protected.
Oil is priced at a 12-month high, helped by the confidence of the OPEC+ grouping in the economic recovery and the downturn in US crude reserves (-1 million barrels last week, after having already fallen by 9.9 million the previous week). Gold is trading at its lowest ebb since November in response to the upturn in the dollar and Treasury yields.
Solid US economic statistics have supported the upward trend. Private-sector companies started creating jobs again in January after letting people go in December. The numbers are not that great, as job creation was only 49,000 but this was better than the -227,000 figure for December. Initial jobless claims fell more than expected in the US in the week ending 30 January, clocking in at 779,000. Business expansion in the services sector picked up to an unexpected degree in January, with the ISM (58.7) reaching its highest rate since February 2019.
In Switzerland, the KOF Swiss Economic Institute cut its Swiss GDP growth forecast to a mere 2.1% this year, compared to +3.2% previously. But it beefed up its figure for 2022, when it sees growth accelerating to 3.6%.
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