Platinum Eyeing $1400; Prospects For Large U.S. Fiscal Package Has Just Gone Up

Platinum eyeing $1400+

has shot up over 20% since the start of February, trading to its highest in 7 years, pushing above $1,300. The long-term chart shows $1432 as the next resistance. The enthusiasm surrounding hydrogen energy adoption is supporting the metal.

Supply wise, there are concerns about further supply disruption in South Africa due to its ongoing issues with vaccines. South Africa had earlier put its roll-out of the Oxford-AstraZeneca vaccine on hold after a study showed “disappointing” results against its new covid variant that accounts for 90% of new cases in the country.

Chinese Entertainment Stocks Rally

The week-long Lunar New Year holiday used to be a busy time and positive driver for the Chinese economy. Still, with people following the government’s request to stay put this year to contain the virus spread, some might start to worry about the impact on economic growth. Without doubt, some sectors related to travel, e.g. transportation services and hotels, will suffer tighter mobility restrictions. On the other hand, it’s important not to overlook the areas that stand to gain. Retail sales, mainly e-commerce, logistics, catering and entertainment should see a material business pick-up this Lunar New Year.

Today marks the first trading session in Hong Kong in the year of Ox. IMAX (NYSE:) China (HK:) soared as much as 88%, leading a rally in Chinese entertainment stocks after mainland hit record box office revenue over the Lunar New Year.

But the real stock market boosting surprise this week may have to do with the quick end to former US President Trump’s impeachment on Saturday as the Democrats didn’t bring forward witnesses, which could have dragged things out for weeks. The reason for the decision appears to be that the Democrats want to entirely focus on the proposed fiscal stimulus package and not be encumbered by the impeachment process, which was never likely to result in a guilty verdict anyway.

So, I think the market reaction this week is bang on: the probability of a large and fast-moving fiscal package by mid-March has just gone up exponentially.

Throw any notion of market objectivity out the window whilst the momentum behind the reflation theme remains so strong, why bother fighting it. Indeed stimulus and herd immunity is coming sooner than we expected 

Fed Chair Jay Powell must be looking at characters like Larry Summers and thinking “say it more, say it more.” After a decade in which investors and academics alike have questioned whether central banks can create inflation, it is a real lift for the Fed that one of the leading proponents of ‘secular stagnation’ of the last few years should now be talking about upside inflation risks.

If there’s one thing the Fed wants more than anything, it’s for inflation expectations to rise. The Fed’s worst scenario is the reverse – inflation expectations decline, as happened with the ECB. This was very much like the immediate aftermath of the global financial crisis when several FOMC members and academics warned of the risk of very high inflation. The Fed chair at the time, Ben Bernanke, didn’t reject those views because it suited his purpose to talk of high inflation.

Yesterday, Presidents’ Day set the stage for a quiet US market. But we could see US investors extend the long weekend festivities into the market where conditions remain singularly focused on the reflation impulses from US policy deluges amid the rapidly improving reopening act with Covid showing signs of slowly burning out over the past month or so. While rapid vaccine uptake means consensus is aligned to a surge in economic activity and strong profit recovery.

But there is still plenty of wood to chop this week as the equity market’s strength, led by ongoing steep gains since last summer in Tech stocks, and the current rotation into Value, has led many to ask what is already in the price. And of course, is any of the inflation narrative real?

will be the marquee data point in the US this week. And It would be a considerable understatement to say there’s a concern in some corners about the US consumer. The January suggested the remains mired in a recessionary wet blanket, even as and s send conflicting signals. So an upbeat US retail sales could provide the all-encompassing “proof is in the pudding” investors need to take the next massive leap of faith. In contrast, a miss could offer a nasty consolation prize to stocks. Suggesting investors could temporary defer back to the ” wait and see.”

Yields are back to the top end of the recent range as are stocks, but we likely need confirmation of the large US fiscal package to break the range. Value stocks struggle to distance themselves from Growth stocks in equity markets, despite the strength we’ve seen in breakevens, and generally positive vaccine rollout news.

Also, traders will get a chance Wednesday to parse the January for information that probably isn’t there. That’s the great thing about FOMC verbal gymnastics — everyone hears what they want to hear.

Encouragingly, progress on the vaccine rollout for the likes of Israel, UK and the US provides optimism over how quickly a reopening could happen. Building momentum behind Biden’s fiscal stimulus package has also supported sentiment. Both factors suggest even greater upside earnings surprises.

European equities were stronger Monday, up 1.3% and bonds sold off, German yields up 4.6bps to -0.38%. Positive developments on vaccine deployment, the US stimulus package, and evidence of a continued gradual recovery of the global economy have improved sentiment markedly to start the week.

Indeed the series of upside surprises in 4Q20 economic developments highlighted by another beat, this time Japan’s Q4 accounts, rising 12.7% qoq annualized against the consensus at 10.1%. GDP is 98.9% of its pre-pandemic level, underpinned by a surprisingly strong capex comeback, although consumption remains weak.

But notably, the more robust run of global economic data provides keen evidence to investors that the financial data is starting to catch up with the markets lofty economic recovery expectations in Q2 and beyond. 

With the Fed and Biden administration policies perfectly aligned and after a week of consolidation it certainly feels like the path of least resistance remains higher, as calls grow more vocal for an increase in the pace of reopening and the positive implications that would have for some areas of the market.

OIL MARKETS 

Accelerated vaccine rollouts globally and a sharp reduction in COVID19 infections in the US provide the backbone for oil markets next recovery phase. And the most likely scenario should see absolute demand liftoff starting in spring or early summer amid heightened market overshooting risks as calls grow more vocal for an increase in the pace of reopening across the USA. 

This week extreme arctic type weather in much of the US has triggered rolling blackouts and pushed prices higher across the energy and electricity complex. Power prices surpassed the grid’s cap of USD9,000 per megawatt-hour on Monday in Texas. In addition to the production” freeze in” across the Permian Basin, supply has also seen cuts to power stations, and refineries in the Gulf of Mexico have been shut, pushing gasoline and prices higher.

While the omnipresent smouldering Middle East powder keg threatened to reignite after the Royal Saudi Air Force intercepted an explosive-laden drone en route to Saudi territory, heightened perceived geopolitical risk and contributed to some momentum. Keeping in mind Mother Nature nor Middle East tension price boosts amid a supply glut is likely to have the legs to support oil prices alone as both types of price bounces historically have typically faded as quickly as they come on. So we could expect some natural downward price moves as oil markets supply naturally rebalance to the current. equilibrium 

The unexpected US supply disruption provides another short term price recovery bridge that has likely taken oil prices to a level where markets were eventually heading but just a little bit quicker than expected. And with the polar vortex type freeze anticipated to hang around most of the week, compounded by a surge in demand for Oil futures from non-traditional oil patch investors as an inflation hedge, at minimum, it suggests we may have entered a new upper bound range with few reasons to doubt that fundamentals will justify further recovery in oil prices to long term equilibrium of USD 65/bbl and likely beyond by year-end.

The focus will soon shift to the OPEC+ meeting taking place in early March. It will be necessary for the group to continue to present a unified front and convey the impression that it is still enforcing supply discipline.

points to more drilling, but US oilfield activity is still below “sustaining” levels. But it is picking up quickly on higher prices and likely to continue to do, so US tight oil has been a significant swing factor in global supply/demand balances in recent years, and given its scale (at more than 11% of global supply) and relative price sensitivity, it will remain so. But this year, its effect at the margin will be far less significant than the recovery in global demand, and the supply response from OPEC+ due to Capex drops. 

FOREX

FX has been choppy, but the risk to positive news-flow surprises suggest GBP’s upside now looks asymmetric. 

The UK equity market has been one of the worst-performing major global markets since the Brexit referendum in June 2016. And with the UK at the head of the G-10 class on the vaccine rollouts, Sterling is still in demand as FX trader continue to anticipate real money adjustments piling back into underinvestment UK themes that have been in the tank since Brexit. 

And the bar for news flow to surprise positively (vaccine, restriction lifting, rebound) is now considerably lower than that for (already high vaccination rate, fiscal stimulus priced), and EUR remains a medium-term conviction long.

All the focus has been on 1.39 breaching in , but its the sneaky climb in is starting to capture the market attention. And it’s the first time in a while the street is taking out USDJPY topside via both vanilla and leveraged structures. All this is occurring after a leaked monetary policy report suggesting that the BoJ might take measures to reduce hurdles to more negative rates by revising its three-tier current account structure.

The holds close to 2-week highs supported by Oil prices, vaccine optimism and a gradual reduction of the MCO which seems to be on the cards sooner than later. But the local note will face a keen foreign investors test as the Malaysian government will auction 2 billion 2040 MGS to settle on Feb 18, 2021, which will be a good gauge of foreign investor uptake for local debt amid economic headwinds.

I would expect the auction to be well received given global investor’s insatiable chase for yield.

GOLD MARKET

Much of the market current woes are attributable to rising US yields. The absence of realized inflation on the ground hurts the view also after last weeks US CPI miss as implied or breakevens inflation can only carry the long gold narrative for so long. 

Investors need to see the US dollar sledge lower vs the EUR as the keenest SingPost the dollar is on the verge of establishing a longer-term weaker trend. 

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