Improving global economic outlook sparks market optimism

18 February, 2021 12:00 AM printer

NEW YORK: Currencies and stock markets have moved higher since my last column, with the US dollar weakening. After hitting two-month highs in February, the US Dollar Index has since cooled off as a risk-on approach has boosted money markets.

With the Covid-19 vaccination supply crunch story taking a back seat, investors are finding a sense of optimism around the improving global economic outlook story, report agencies.

This coming Friday will be the first test of the year, when several leading economies, including the US, eurozone, UK and Japan, release their flash Purchasing Managers’ Index data for the month of February. The PMI is a key early indicator in the measure of activity in both the services and manufacturing sectors.

While the US is expected to show a slight slowdown in both manufacturing and services PMI, the figure will still be deep in expansionary territory (a reading above 50 indicates a pick up in economic activity). Both categories are expected to outperform in the eurozone.

Along with the week-ending PMI data, I will also be watching for US retail sales due out later today, with month-on-month sales forecast to show a strong bounce back after a contraction of -0.7 per cent in December.

We also have the US Federal Reserve meeting minutes due late Wednesday, which will give a deeper view into the thinking of the central bank and its views on inflation, in particular. So far, the Fed has maintained a dovish view on price pressures and it will be interesting to see if that outlook changes even slightly.

Keep an eye out for the progress of US President Joe Biden and his government this week, who have yet to gain support from Republicans to deliver on the $1.9 trillion stimulus plan.

While there is no set date on when the bill will pass, Democrats would want it enacted before the next round of emergency jobless benefits comes to an end in a month’s time. Much of the stimulus talk is already priced into the markets, and barring an immediate burst of risk on buying, markets should quickly shrug off the news.

Meanwhile, all eyes are on the British pound, which has rallied almost 3 per cent from its early February lows. After smoking through a couple of key resistance levels, it is trading at near three-year highs above $1.39 levels and is on the verge of my $1.40 target given last time.

The pound has benefited from a weaker greenback and markets are grasping the optimism around the vaccine drive in the UK, where more than 15 million people have been inoculated so far.