GLOBAL MARKETS STRATEGY DAILY UPDATE - Monday, January,18 2021 05.01.2021

Monday, January,18 2021

GLOBAL MARKETS STRATEGY DAILY UPDATE

Alexander APOSTOLOV, PhD, MBA
                                                                                                            Chief Investment Strategist
FX FOCUS                                                                                                    www.bluesuisse.com/en/analysis
                                                                                                            analytics@bluesuisse.com

Two reports over the past week serve as a reminder of limits to vaccine optimism and the recovery in risk
assets                                                                                                      Market Snapshot

EUR: Mutations and potential pitfalls around vaccine rollout suggest risks to Q4 2021 onwards
are higher than previously anticipated and could change parameters of the current virus                     Main Quotes Heat Map
narrative. Adding to these concerns is confirmation from a key drug manufacturer it will
temporarily reduce vaccine deliveries across Europe, meaning any upsizing in vaccine
distribution will likely be capped.
  USD: Distribution challenges aren’t the only issue – monitor the supply situation too - in the
US, Washington Post reports that expanded access to vaccines is unlikely. Bottom Line – the
reports speak to distribution challenges and supply shortfall of Covid-19 vaccines, adding to risks
that vaccination timelines can be further delayed. It also increases global lockdown and growth
risks for Q4 – which poses risks to the global recovery outlook and risk assets (FX).
  US data releases Friday - retail sales weaker but firming inflation data may start to see markets
                                                                                                            1 Day Relative % Performance [USD]
focused more on Fed tapering watch:
• USD: US December retail sales decline sharply but expected to bounce in January – Friday’s
most significant miss sees headline retail sales down -0.7%MoM in December and the control
group, which strips out strong auto sales also down -1.9%MoM. bluesuisse.com analysts however
aren’t concerned, as spending levels run well above pre-COVID. Looking-ahead, the team expects
stronger sales data.
• USD: US December Industrial production is up 1.6%MoM, above consensus for 0.5% with
manufacturing advancing a strong 0.9%MoM. bluesuisse.com analysts expect the constellation of
industrial data from “soft” survey indicators to point to an ongoing and broad-based rebound in             FX Technical Indicators Summary
manufacturing.
• USD: US consumer confidence meets expectations but inflation expectations rise – January
University of Michigan Consumer Sentiment Survey comes roughly in line with consensus
forecasts at 79.2 (80.7 prior). Notably though, the 5-10Yr inflation segment rises to 2.7% from
2.5% amid growing optimism about reflation.
• USD: December PPI imply firmer core PCE inflation - PPI final demand rises 0.3%MoM and
remains at 0.8%YoY in December, closely in line with expectations. The core measure, which
excludes food, energy, and trade services, is also firmer, rising 0.4%MoM. bluesuisse.com
analysts flag that the print reinforces the outlook for core PCE to overshoot 2% temporarily
starting in April of this year.
  UK data releases Friday - GDP notably more resilient than expected:
• GBP: UK GDP falls - 2.6% in November – though still substantially stronger than consensus for
a - 4.6% decline. This leaves UK GDP 8.5% below the pre-pandemic level (Feb-2020) even as
growth on a three month by three-month basis is now running at 4.1%. The print coincides with
the England wide lockdown measures imposed during November, and similar restrictions in
Scotland, Wales, and Northern Ireland. In comparison with April though, nearly all sectors
(particularly manufacturing and construction) prove more resilient except consumer services.
bluesuisse.com analysts downgrade 2021 growth – drivers behind the 2020 resilience are
unlikely to provide the same support in early 2021 and the team now expects a sharp reduction
in output in Q1-2021, with activity in January 2021 falling to 14.9% below February 2020 levels
(a similar hit to June 2020).
  Week Ahead:
• EUR: ECB Monetary Policy meeting – Refi Rate Forecast: 0.00% Prior: 0.00%; Deposit Facility
Forecast: -0.50% Prior: -0.50%; Marginal Lending Facility Forecast: 0.25% Prior: 0.25% -
bluesuisse.com analysts do not expect any changes on policy or communication but it is of
interest to see what message President Lagarde sends with respect to the near-term outlook and
risks surrounding the baseline and current strength in EUR and impact on euro area’s longer-
term inflation outlook.
• EUR: Euro area Manufacturing PMI, January Flash Forecast: 57.0 Prior: 55.2; Services PMI,
January Flash Forecast: 43.0 Prior: 46.4; Composite PMI, January Flash Forecast: 47.5 Prior:
49.1 – bluesuisse.com analysts estimate that the flash composite PMI will fall back in January, by
around 1.5 points to a two-month low of 47.5, signaling economic activity is contracting due to
lockdowns but the impact is smaller than in November, let alone than in the spring.
• EUR: German ZEW Expectations, January Forecast: 60 Prior: 55.0; ZEW Current Assessment,
January Forecast: -70 Prior: -66.5 - On the back of vaccine roll-out, hopes for more US fiscal
stimulus and continued central bank support, equity markets in Germany continue to surge,
which will likely be reflected in investor expectations.
• GBP: Manufacturing PMI, January Flash Forecast: 52.5 Prior (Nov Final): 57.5 – bluesuisse.com
analysts expect the UK headline manufacturing PMI to fall back sharply this month as recent
data has been flattered by both Brexit stockpiling effects and growin

Alexander APOSTOLOV, PhD, MBA
g pressure on supply chains.                                                                       Chief Investment Strategist
• GBP: Services PMI, January Flash Forecast: 40.3 Prior (Nov Final): 49.4 – bluesuisse.com         www.bluesuisse.com/en/analysis
analysts expect the UK services sector to be hit hard by the move on 4 January back into a         analytics@bluesuisse.com
national lockdown though not by the same order as in April 2020.
• CAD: Bank of Canada Rate Decision – 0.25%, median: 0.25%, prior: 0.25% - bluesuisse.com
analysts are most curious to hear about any possible guidance around upcoming changes to           Market Snapshot

monetary policy. bluesuisse.com base case continues to be that the next adjustment to monetary
policy will be to allow for a slower pace of weekly bond purchases later this year (possibly the
April BoC meeting).
.
                                                                                                   Main Quotes Heat Map

                                                                                                   1 Day Relative % Performance [USD]

                                                                                                   FX Technical Indicators Summary

Chart of the Day

Crude Oil: Pullback at Hand Before Next Leg Higher?

Crude oil prices are over 11% higher this month, bolstered by an improving economic outlook, higher global trade activity, and positive OPEC+
developments. West Texas Intermediate (WTI) prices are hovering below the yearly high set last week at 53.90. Prices look poised for higher ground,
but a short-term pullback may be the most likely course of action before a subsequent rally takes shape. The 9-period Exponential Moving Average on
the 4-hour timeframe supported prices leading up to 2021 high before fading. An ensuing push upward fell short and WTI proceeded lower. Now, the
approaching 9-period EMA may provide support once again for a quick retest, though a period of consolidation appears to be an equally likely short-
term outcome. One point of concern for buyers is the bearish divergence between the Relative Strength Index and recent swing highs in crude oil
prices themselves. A move down to trendline support from last November would give bears a short-term victory while allowing the broader trend to
remain intact, conceding some profit-taking in the process. That said, an extension higher may still be the most likely scenario following a short-term
move lower or a period of consolidation.

• CRUDE OIL - 4-HOUR

Alexander APOSTOLOV, PhD, MBA
                                                                                                     Chief Investment Strategist
Capital Markets Overview                                                                             www.bluesuisse.com/en/analysis
                                                                                                     analytics@bluesuisse.com

Down Week Ends on Lower Note
                                                                                                     Market Snapshot

Crude oil prices are over 11% higher this month, bolstered by an improving economic outlook,         World Exchanges Performance Heat Map
higher global trade activity, and positive OPEC+ developments. West Texas Intermediate (WTI)
prices are hovering below the yearly high set last week at 53.90. Prices look poised for higher
ground, but a short-term pullback may be the most likely course of action before a subsequent
rally takes shape. The 9-period Exponential Moving Average on the 4-hour timeframe supported
prices leading up to 2021 high before fading. An ensuing push upward fell short and WTI
proceeded lower. Now, the approaching 9-period EMA may provide support once again for a
quick retest, though a period of consolidation appears to be an equally likely short-term outcome.
One point of concern for buyers is the bearish divergence between the Relative Strength Index
and recent swing highs in crude oil prices themselves. A move down to trendline support from
last November would give bears a short-term victory while allowing the broader trend to remain
intact, conceding some profit-taking in the process. That said, an extension higher may still be
the most likely scenario following a short-term move lower or a period of consolidation.
                                                                                                     1 Day Relative Performance
• CRUDE OIL - 4-HOUR

                                                                                                     Technical Indicators Summary