AFEX Market Watch - 4th March 2021
What Happened Yesterday
Australian GDP figures beat expectations as the economy grew by 3.1% in the fourth quarter. The economy is still 1.1% smaller than it was in the final quarter of 2019 but is doing well compared with the US (-2.5%); the UK (-7.8%) and the Eurozone (-5%). Consumer spending, housing transactions and machinery investment. Virus control and well targeted economic stimulus has been shown to be the critical difference.
The Australian dollar dropped by 0.5% and AUDUSD retraced below 0.7800 as risk-off sentiment returned to the stock markets. The NASDAQ has recorded its largest two-day decline since September and the VIX volatility gauge increased by 10%. This overshadowed gains for resources and energy prices. The US dollar index is holding above 90 and its 50-day moving average.
Britain’s chancellor of the exchequer, Rishi Sunak, unveiled the country’s budget for the next fiscal year. Several schemes to support employment during covid-19, including the furlough scheme, were extended, as was a cut in house-purchase tax. But corporation tax will be increased from 19% to 25% in 2023, and most personal tax thresholds frozen until 2026, to pay for pandemic-related largesse.
Major Risk Event
Israel has now “fully vaccinated” 40% of its population, termed as the percentage of people who have received both doses of the Pfizer jab. This is almost double the 2nd placed UAE while America lies in 3rd place at 7.6%. Daily cases have halved since January whilst deaths are 90% lower as old and vulnerable people have been protected. This bodes well for the rest of the world once vaccination has become wider reaching.
The next Federal Reserve meeting is still two weeks away but the media black-out period, the timeframe where board members are prevented from speaking publicly, begins tomorrow. Tonight Chair Jerome Powell will be the last member to appear and this will provide the market with its final clues of what the board will do. Interest rates will likely not change but further bond-buying may be in the offing.
Oil prices have risen to a thirteen month high due to OPEC supply cuts. This is a contributing factor to AUD strength. Tonight the fragile cartel will meet to discuss tentatively raising supply. There is a fine balance though. If they do too much then they may flood the market and cause a steep fall in prices. Should they cut supply then they could stifle the recovery in demand which would lead to a drop in prices at a later stage.
Tomorrow night’s highly anticipated monthly US employment report is preluded by the weekly jobless claimant count figure tonight. Last week 730,000 claimed for unemployment insurance benefits which, although three times more than pre-pandemic levels, was the lowest number since December 4th. However, another increase is expected which signals that the overall unemployment rate will rise tomorrow.