Key Points From This Week

Fed on Hold

At the January FOMC this week, the Fed held monetary policy unchanged in line with expectations. Although the Fed acknowledged that US economic performance had been weaker recently, it gave no indication of any further easing coming in the near term. Instead, the bank called on the need for further fiscal support, suggesting that it will wait to see the outcome of current US fiscal stimulus negotiations. The Fed also cited optimism around the ongoing vaccination effort and again outlined its forecast that the economy will rebound later in the year.

Reddit Traders Target Hedge Funds

The big story this week was the news that a (large) group of amateur traders on Reddit banded together to help lifting ailing stocks that were being sold into bankruptcy by hedge funds. Reddit users caused a 2000% rally in GameStop, causing two hedge funds massive losses (one of which needed to be bailed out by investors) before trading was halted.

US GDP Worst Since 1946

With Q4 2020 GDP coming in at just 4%, the overall 2020 US GDP was seen at -3.5%, the worst yearly economic performance since 1946. It also marked the first time the US economy has shrunk on a yearly basis since 2009 when it fell 2.5% in response to the global financial crisis.

Key Events Next Week

RBA Feb Meeting

The RBA is unlikely to adjust policy at next week's meeting though there are upside risks in terms of the outlook. The RBA is likely to be more positive on local and global growth prospects as well as the ongoing recovery in the labour market. AUD likely to stay supported in response to the meeting.

BOE Feb Meeting

The BOE meting next week will be a key focus point for the market. In light of the ongoing nationwide lockdown and the issues faced post-Brexit, the risk of further easing from the BOE is elevated. There have been murmurs regarding a potential move to negative rates with Goldman Sachs assigning a 25% probability. While such a drastic move might not happen yet, the bank certainly looks geared towards further easing in some capacity given the challenges facing the UK economy currently.

US Labour Reports

The next round of US labour reports is due next week. In December, jobs growth went negative again for the first time since April 2020 and traders will now be looking to see if that trend continued in January as a result of spiraling infection numbers.

Keep An Eye On

Vaccine Updates

There has been a lot of talk this week regarding disruptions in vaccine supplies, especially in the UK and Europe. A row has now also erupted between the UK and the EU over the proportion of vaccines going to the UK over the EU. If this situation starts to slow the UK's vaccine progress this could further hit UK economic expectations, especially ahead of the BOE meeting.

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