Nikkei is attracting attention with its performance

Feb 17, 2021
  • EUR/USD 1.2075
  • DOW JONES 31’522.75
  • USD/CHF 0.8945
  • SMI 10’907.60
  • EUR/CHF 1.0800
  • BRUT 60.27
  • USD/RUB 73.80
  • XAU/USD 1’749.00
The forex market has been quite stable in recent days. Monday was a public holiday in the ...

The forex market has been quite stable in recent days. Monday was a public holiday in the United States and much of Asia was also absent for the Chinese New Year celebrations which stretched from last Thursday to today. From then on the major currencies fluctuated within very small ranges at the start of the week. At around 1.2100, the EUR/USD parity is moving in the middle of the 2021 fluctuation band which goes from 1.2350 to 1.1950. Recently released economic data reflects the situation at the end of 2020 as eyes turn optimistically towards 2021. The OECD leading indicator remains encouraging – if slightly down from January levels – which confirms the continued recovery of the economy at the global level. The recovery is proving to be particularly strong in China, which returned to its pre-pandemic level in the third quarter of 2020. The US economy, also on a dynamic recovery path, hopes to regain its pre-crisis level around the third quarter of 2021, driven by a massive reopening and an increase in vaccinations. Europe is experiencing more difficulties, with more restrictive health measures in place. In Switzerland, the massive use of short-time work during the pandemic slowed down the increase in the number of job seekers. In 2020, it stood at 3.14% against 2.3% in 2019, its lowest level since the 2000s. In January, it experienced another small surge and climbed back to 3.7%, a number that had not been reached since 2009 during the financial crisis. This fall and winter, the second wave of coronavirus will weigh on the Swiss economy. The SECO has therefore revised downwards its GDP growth forecasts. Growth should restart sharply if the health situation improves and the SECO is now forecasting growth of 3% in 2021 and 3.1% for 2022. In the UK, that sense of optimism is reflected in the currency. The pound sterling continues to groin ground with a vaccination campaign is in full swing that is allowing to consider the potential end of the lockdown that has paralysed the country for many weeks. British Prime Minister Boris Johnson is expected to announce early next week the first easing measures with a probable reopening of schools in early March. The pound is flirting with 1.4000 against the dollar, a level it had not seen since the first quarter of 2018. And we would have to go back before the 2016 Brexit referendum to find the pound sustainably above this level. But the market remains cautious pending the first post-Brexit economic data. While at first bad figures could have been attributed to the effects of the pandemic, it could be different in the second half of this year.

The Central Bank of Sweden announced last week, unsurprisingly, that it was holding its interest rates steady at 0%. And it now plans to leave them at this level until at least 2024 to facilitate the recovery of the economy. The bank revised its growth forecasts for 2020. It now expects a smaller contraction of around 2.8%, against a 4% contraction previously.

The Central Bank of Russia left its rates unchanged on Friday but significantly changed its view by being much less accommodative. Governor Elvira Nabiullina said the downward rate cycle was over. It thus stops at 4.25% after almost two years of decline. Even if her tone was more hawkish, she believes that monetary policy should remain accommodative this year again and refused to mention a timetable for a return to neutral monetary policy. The CBR has decided to publish its interest rate forecast in April, joining the major central banks such as the Fed or the ECB.

The Central Bank of Mexico cut its interest rate by 0.25% to 4%. What surprised analysts was that this was a unanimous decision. The decision now opens the door to a gradual drop in the benchmark rate to 3.5% according to these same analysts.

Crude prices continue to rise and the barrel of WTI exceeded $60 at the start of the week. This is the highest price since mid-2018. The largest refineries in North America were forced to shut down due to harsh winter conditions that halted one-third of production. This situation is expected to continue this week. The surge in oil prices, if it is confirmed, will allow a further drop in production by OPEC in April.

As for the stock market indices, we can see that they are all in the green at the start of the year, but it is the Nikkei that is attracting attention with its performance. On Monday, Japan’s flagship index, the Nikkei 225, finished above the 30,000 point mark for the first time since 1990. The country posted 3% GDP growth in the fourth quarter of 2020 compared to the previous quarter, above expectations of 2.4%. Economy Minister Yasutoshi Nishimura believes the results indicate that the country is on the right track to recovery as the vaccination campaign is expected to start this week.