Sterling finished the week with the best result. But the late sell-off and rejection of resistance to the dollar and yen suggest that the latter two are leaders.
The weakness was visible in the euro, the New Zealand dollar, and, to a lesser extent, the Australian dollar. The dollar could be an additional argument in favor of a stronger rebound in the short term. But for confirmation, you need to make a few more technical levels.
However, in general, the markets were rather patchy, as if something was turning a corner. The new stimulus package for President-elect Joe Biden did not generate a positive reaction from stock investors. But the late pullback has not yet required a deep correction.
At the same time, strong growth was observed in Asia, in particular in Nikkei and HSI. US yields have failed to accelerate steadily through channel resistance, but there are no signs of highs. Gold tried to recover, but it was not visible.
Attention is primarily focused on the consumer’s health amid the latest surge in COVID. Retail sales fell 0.7% in December, the third consecutive month of decline. Total retail sales continued to grow by 2.9% year-over-year, but the rise in COVID cases has resulted in lower consumer sentiment and lower consumer spending.
Moreover, the rate of vaccine diffusion appears to be accelerating, and we expect consumer spending to improve as vaccines become more widely available. We also expect that higher consumption rates will eventually lead to moderate inflationary pressures. But at the moment, inflation seems to be pretty low-key.
In December, the consumer price index (CPI) climbed 0.4%, mainly driven by higher food and gas prices. However, during the month, core inflation grew at a more moderate pace – 0.1%. Inflation may temporarily rise in the spring as COVID cases slow and consumer spending accelerates, but we are not forecasting a sustained surge.
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