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Weekly financial market overview 18.01.-24.01.

News - January 25, 2021

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Konstantins Goluzins, CFA



Head of Asset Management
Phone.: (+371) 6700 0456
E-mail: trust@bib.eu

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Main events of the previous week

The European Central Bank (ECB), as expected, kept the base interest rate on loans at zero level, the rate on deposits at minus 0.5%. The rate on margin loans remained at the level of 0.25%. The ECB's Governing Council expects key rates to remain at or below current levels until inflation “confidently” approaches its target of just below 2%. The ECB also did not change the scope of the Pandemic Emergency Purchase Program (PEPP), leaving it at 1.85 trillion euros, as experts expected. The central bank will continue to buy back assets under this program, at least until the end of March 2022, and in any case until it considers that the crisis caused by the coronavirus pandemic is over. The ECB also intends to reinvest the proceeds from redeemable bonds under the PEPP at least until the end of 2023. ECB President Christine Lagarde said at a press conference after the ECB meeting that the coronavirus pandemic is likely to cause the economy to contract at the end of 2020 and put pressure on economic activity early this year, but this is in line with the ECB's forecasts. Lagarde noted that risks to economic growth are biased downward, but less pronounced. She also believes that the introduction of vaccines, which began in late December, provides more confidence in resolving the health crisis. However, it will take time to achieve herd immunity and further adverse events associated with the pandemic cannot be ruled out.

In the first day at the office, the new US President Joseph Biden signed 15 decrees and orders canceling the decisions of his predecessor Donald Trump, as well as introducing new measures to combat the coronavirus pandemic. Biden overturned Trump's decree barring several predominantly Muslim countries from entering the United States and suspended construction of the wall on the border with Mexico, which under Trump was built around the clock until the January 20. Even during the election campaign, the Democrat promised to restore the country's membership in the Paris Agreement on Climate Change, which Trump announced his withdrawal from in 2017. The president also signed a decree ordering the migration authorities to stop trying to expel people who arrived in the United States as children with illegal immigrant parents from the country. The Trump administration spent four years trying to shake off this Barack Obama initiative known as the DACA program, though it ultimately failed in the courts. Biden also suspended the country's withdrawal from the World Health Organization, begun by his predecessor, and made the wearing of masks and physical distancing measures mandatory in all federal agencies and for government employees.

The European Central Bank (ECB), as expected, kept the base interest rate on loans at zero level, the rate on deposits at minus 0.5%. The rate on margin loans remained at the level of 0.25%. The ECB's Governing Council expects key rates to remain at or below current levels until inflation “confidently” approaches its target of just below 2%. The ECB also did not change the scope of the Pandemic Emergency Purchase Program (PEPP), leaving it at 1.85 trillion euros, as experts expected. The central bank will continue to buy back assets under this program, at least until the end of March 2022, and in any case until it considers that the crisis caused by the coronavirus pandemic is over. The ECB also intends to reinvest the proceeds from redeemable bonds under the PEPP at least until the end of 2023. ECB President Christine Lagarde said at a press conference after the ECB meeting that the coronavirus pandemic is likely to cause the economy to contract at the end of 2020 and put pressure on economic activity early this year, but this is in line with the ECB's forecasts. Lagarde noted that risks to economic growth are biased downward, but less pronounced. She also believes that the introduction of vaccines, which began in late December, provides more confidence in resolving the health crisis. However, it will take time to achieve herd immunity and further adverse events associated with the pandemic cannot be ruled out.

In the first day at the office, the new US President Joseph Biden signed 15 decrees and orders canceling the decisions of his predecessor Donald Trump, as well as introducing new measures to combat the coronavirus pandemic. Biden overturned Trump's decree barring several predominantly Muslim countries from entering the United States and suspended construction of the wall on the border with Mexico, which under Trump was built around the clock until the January 20. Even during the election campaign, the Democrat promised to restore the country's membership in the Paris Agreement on Climate Change, which Trump announced his withdrawal from in 2017. The president also signed a decree ordering the migration authorities to stop trying to expel people who arrived in the United States as children with illegal immigrant parents from the country. The Trump administration spent four years trying to shake off this Barack Obama initiative known as the DACA program, though it ultimately failed in the courts. Biden also suspended the country's withdrawal from the World Health Organization, begun by his predecessor, and made the wearing of masks and physical distancing measures mandatory in all federal agencies and for government employees.

 

 

Economic data

US. The number of initial jobless claims for the week was registered in the amount of 900 thousand, which is 26 thousand less than the week before and 10 thousand less than predicted by analysts.

According to the results of the primary assessment of the PMI business activity index in January, the indicator increased by 2.7 points and amounted to 58.0. Of the indicators that make up the index, business activity in the service sector was 2.7 points higher, and the state of the manufacturing sector increased by 2 points.

Eurozone. According to the results of the primary assessment of the PMI business activity index in January, the indicator decreased by 1.6 points and amounted to 47.5. Of the indicators that make up the index, business activity in the service sector was 1.4 points lower, and the state of the manufacturing sector fell 0.5 points.

The consumer price index in December rose by 0.3% versus November, while the annual inflation was -0.3%. The growth of the core inflation rate excluding food and energy in December amounted to 0.2% y/y.

China. GDP in the fourth quarter grew by 2.6% relative to the third quarter, while yearly GDP growth (relative to the fourth quarter of 2019) amounted to 6.5%.

Retail sales in December increased by 4.6% compared to December 2019, while the growth rate of retail trade was expected to be 5.5%.

Industrial production in December increased by 7.3% compared to December 2019.

The unemployment rate in December remained at the level of November, amounting to 5.2%.

Key events this week

  • The Davos Economic Forum will take place this week, this time in an online format.
  • On Wednesday, the US will publish data on orders of durable goods in December, as well as changes in oil reserves for the week, in turn, the Fed will publish its decision on the key interest rate.
  • On Thursday, the US will give a primary estimate of GDP growth in the fourth quarter, as well as publish the number of initial jobless claims for the week.
  • On Friday, data on personal income and expenses of Americans will become known.

 


The information provided herewith has an informative nature. This information cannot be regarded as an offer or recommendation for purchase, storage or sale of securities, or as an investment recommendation, an investment survey or a consultation on investments, or a recommendation to entrust management of your assets to the specific investment manager. The Client is fully aware and undertakes all risks involved in the investment. This information is prepared by AS Baltic International Bank.

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