INVESTORS ARE WAITING FOR REAL DECISIONS FROM CONGRESS ON INCENTIVES

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Today, the markets’ focus will be on a political event that plays a significant role for the financial markets. Of course, I’m talking about the 46th US President Joe Biden’s inauguration. Investors focus on the risks of acts of disobedience by a part of the population that does not agree that he won the election legitimately.

Besides, the results of the meeting of the Central Bank of Canada on monetary policy will also draw attention, although no one expects any surprises.

The key interest rate is expected to remain unchanged at 0.25%, but investors will be interested in the regulator’s view of future policy in the context of the remaining noticeable impact on the life of Canada of the coronavirus infection pandemic and the new president of America, which, could strongly influence its northern neighbor.

It will also be interesting to see the updated data on consumer inflation in the UK and the Eurozone. In Britain, the indicator is expected to grow both on an annualized and monthly basis, respectively, by 0.5% from 0.3% and by 0.2% from -0.1%. Meanwhile, the euro area is expected to stagnate in annual terms at the level of + 0.2%, but in monthly growth of 0.3% versus a decline of 0.3% a month earlier.

The most important will be a reaction of the Bank of England and the ECB to these essential macro indicators. We will probably see the European regulator’s response at the ECB meeting tomorrow.

Yesterday the markets closely followed Janet Yellen’s speech to Congress. She broadcasted many important things to local deputies, touching on the entire spectrum of fiscal policy. Still, the main thing investors hear from her statement was her expectations on monetary policy. She reported on the need to keep interest rates low for a significant period of time. In this regard, it is essential to note that the US government debt market’s reaction was mixed. The yield on 10-year Treasuries practically remained at the same levels, but on the 2-year Note, which is sensitive to possible dynamics of changes in the level of interest rates, decreased. All this points to the lack of a clear opinion of the markets regarding the Fed’s actual actions. The market believes that the rise in inflation in the United States may force the Fed, despite promises not to change anything in monetary policy, to reduce the volume of bond redemptions, which will become factors in their continued sales and increase in yields. In this case, the dollar will receive support, and the general view of the market on its prospects this year may radically change.

What to expect soon:

I believe that today the market will either grow up on the wave of the fact that Biden took office or, most likely, consolidate, both in anticipation of the ECB meeting and further prospects of the implementation of the new assistance measures


By Maksim FXbro