Quiet start to the week

A quiet start to the week, with the US bank holiday meaning trading is likely to remain extremely thin throughout the session.

European stock markets are mixed, lacking any real direction, as has been the case for much of the last week. With so much good news priced in over the last couple of months, stock markets have been running on fumes. There doesn't appear to be much of an urge to sell at this point but perhaps a little more caution is creaping in.

The focus the last couple of weeks has been around US yields against the backdrop of a massive potential stimulus package. Fed policy makers have been keen to warn off speculation around tapering or rate increases which has taken some of the edge off but yields remain elevated compared to the last 12 months.

That's continued to spur interest in the dollar, which is enjoying something of a short squeeze. It's still only made up a tiny amount of lost ground since late March, or even compared to pre-pandemic levels, so could have a little further to run yet, especially if the Fed fails to convince.

With Joe Biden assuming the Presidency in two days, the new administration will seek to get to work quickly on its proposed $1.9 trillion stimulus package, the outcome of which could determine the path of travel for stock and bond markets. With such a slender majority in the Senate, Biden may be forced into compromise if he wants to get this over the line which may not be a massive blow in either case, depending on where that comes.

With vaccines being rolled out and the end of the nightmare in sight, countries around the world are turning their focus to the recovery. China is already well ahead in this regard, with data this morning showing just how far ahead they are.

The country grew 6.9% quarter on year, taking 2020 growth to 2.3%, which is not bad at all under the circumstances. Strong demand for exports is supporting the ongoing rebound in China, the only major economy to be enjoying any growth. Obviously there's still a long way to go for the country to get back to where it wants to be, with consumption and debt a focus once again but under the circumstances, policy makers will be relieved.

Oil seeing more profit taking

We may be seeing a little profit taking in oil prices after a remarkable run over the last couple of months. Brent and WTI fell more than 2% on Friday and are adding a little to that again today. While we may see a little more softness in the coming weeks, especially if broader risk appetite doesn't improve, crude continues to be well supported by the actions of OPEC+.

Of course, there is always downside risks that will continue to be monitored. Lockdowns are a near-term growth risk that are becoming stricter and prolonged. Of course, the vaccine is the light at the end of the tunnel, here. US shale output is another, given the healthier state of prices. That may make the challenge of bringing production back online more challenging for OPEC+ but shouldn't cause any oil price shocks in the near-term.

Gold edges higher despite stronger dollar

Gold started the week on the backfoot but has turned things round to trade $5 higher on the day, once again finding support on approach to $1,800. This is positioning itself as a strong support level for the yellow metal, but it faces strong opposition from the dollar as it comes back into favour.

That may not last but in the short-term, yields remain elevated and the greenback is reaping the rewards. If $1,800 falls, it could be a psychological blow but the late November low around $1,765 will then become the real test. A break of this could see remaining gold bulls abandon ship.

Bitcoin entered consolidation period?

Bitcoin appears to have entered into a consolidation period amid all of the volatility this month. We're not exactly talking narrow ranges here but it does appear to have settled down a little. For how long though? I don't think anyone thinks the wild moves of the last few months are behind us. It's more a case of when the next burst of activity will happen and in what direction.