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Latest EUR USD Analysis and Forecasts

Global Markets Outlook 2021

Published January 8, 2021 by: Stephen Pope
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Initial Parameters:

• Chart analysis is technical and taken from medium-term historical pattern
• Technical projections based on a twelve-month time horizon
• Targets set are based on the most recent, significant technical adjustment
• Analysis is based on Elliot Wave and Fibonacci techniques
• Technical analysis only guides; exogenous factors can shock any market
• Markets, being capricious, forecasts are subject to revision
• Fundamental analysis can be commissioned on request
• Equity sector analysis is thematic

United States of America, T Bills:

• Across the Treasury Bill curve too much cash has chased too little paper
• There is a real prospect of negative yields across the T-Bill curve
• The secured overnight financing rate (SOFR) will follow this path

US Treasury Notes and Bond; 2 ~ 30 year

• Since July 2020, T10 note and T30 bond yields have steadily risen
• 2/10 steepened by 53.4 bps since the start of 2020 to Dec 31
• Treasury Department has to quickly signal the path of borrowing

US Treasury 2/10 Spread (bps)

• As Fed has delivered accommodation, so 2/10 spread has recovered
• Any bill shortage will impact the curve out to the T2, T3 and T5
• There will be further steepening

US Treasury Butterfly T2 -(2 x T5) + T10

• Butterfly (Barbell) spread has recovered since April
• The recovery in the economy is supported by this move
• There will be further improvement under Biden and accommodative Fed

Eurozone ~ 2 year (bps) over Germany:

• Complacency widespread since “…whatever it takes” and “OMT”… … the front end of the market has been skewed by ECB policy
• Italy is a reason to worry as Conte lacks the backing for basic reform

Eurozone ~ 2 year (bps) over Germany:

Why does France yield less than Germany? G2 > F2 3bps Dec 31, 2020!

Eurozone ~ 10 year (bps) over Germany:

• Same for 10 year paper…
• Ever since “…whatever it takes” and “OMT”…
• … the long end of the market has been equally skewed by ECB policy
• Look at Italy, trading at a significant margin to Spanish spreads

Eurozone ~ 10 year (bps) over Germany:

France hardly moved, average spread > Germany in 2020 was 33.3bps

Eurozone ~ Greece; problem overlooked:

• Relief from EU/EZ budget demands aids attempts to recover lost growth
• Large fiscal gap and Debt:GDP at 176.6%, however, GGB10 YTM 0.630%
• Consumer Confidence decreased to -48.30 points in November

Eurozone ~ Greek inflation collapses

• Consumer prices in Greece decreased 2.1% YoY in November of 2020
• It is the eighth straight month of deflation
• Structural issues not resolved, with youth unemployment at 33%

UK Gilts (%):

• UK front end has broken into a declining channel during 2020
• BoE kept rates at 0.1%; may go negative, bond buying still £875 Billion
• Trade deal with EU will stabilise UK GDP growth; COVID-19 still impedes

UK Gilt Yields (%):

• Negative yields out to the 5-Year as 48% of all issuance yields < 0%
• That means £1.25 Trillion ($1.71 Trillion) is a cost to investors to hold
• 2-Year ended at an all-time high, booking best price gain since 2011

US, European and Chinese Equities

Technical analysis in each chart is over the 12-Month trading range
Given extreme volatility we have shown 50 and 200 day moving averages for 2020

Developed cf. Emerging Market Equities:

• Post March/April collapse developed and emerging equities rebound
• Emerging equities have closed the gap and more sought than EM debt
• Expectation of good cash flow from domestic demand recovery

US Equities:

• Main US equity indices enjoyed a steady expansion since March
• There will still highly volatile sessions as COVID-19 rampages
• Markets still optimistic about “Biden Boost” via infrastructure; stay bullish

CBOE Volatility VIX:

S&P 500 Volatility Index:

Dow Industrials 12 – Month & Fibonacci

S&P 500 12 – Month & Fibonacci:

NASDAQ 12-Month & Fibonacci:

European Equities, leading markets

• All recovered after suffering a setback on COVID-19 worries
• DAX is the most secure investment; indeed it is pulling away from the rest
• IBEX 35 has underachieved with respect to its peer group

DAX 12-Month & Fibonacci:

CAC 40 12-Month & Fibonacci:

FTSE MIB 12 – Month & Fibonacci:

IBEX 35 Fibonacci:

FTSE 100, the key “Non-Euro” European:

• FTSE 100 has found breaking back above the 7000 level difficult
• “Brexit” is over…at least in the main, FTSE to rise on vaccine hopes
• FTSE 100 will press ahead in 2021 as private sector recovers

FTSE 100 Fibonacci:

CSI 300 12 – Month:

• CSI 300 extends gains to make new 5 1⁄2 -year highs
• Driven by consumer stocks as consumer confidence seeking new record
• Investors hope for more measures to spur the country’s consumption

CSI 300 Fibonacci:

Spotlight Indices: 14 Equity Sectors:

• Cyclical…
• Auto…Basic Resources…Capital Goods…Consumer Cyclical… Financial…Travel & Tourism
• Defensive…
• Consumer Staples…Health Care…Tobacco…Utilities
• Sensitive…
• Communications…Defence…Energy…Technology

We asses on a modified traffic light scale:

Equity Sector 2020 Performance:

Equity Sector 2020 Performance:

Auto:

• Global light vehicle production fell to 69.3 million units
• Sales in 202 were seen at 69.6 million, -18.0%
• The pandemic remains a clear and present danger to the autos sector
• High levels of accommodation have boosted shares
• New car sales will rise by 15% in 2021
• Commercial-vehicle sales will increase by 16% in 2021 mirroring the collapse in 2020
• Automakers forced to review global operations
• This will result in plant closures and job losses
• Therefore, the industry will consolidate
• Electric vehicle sales are set to rise from 2.5 million in 2020 to 3.4 million this year, mostly in Europe

Basic Resources:

• Mining firms had over produced before COVID-19 hit
• Major players to book productivity gains
• That can be boosted by commodity price rises in 2021
• Much depends on Bidens’s infrastructure plans
• China will be a big spender on domestic infrastructure
• It will, however, pare back the Belt & Road activities
• The ongoing labour disputes in Latin America may well boost copper
• We will see a reduction in tariffs

Capital Goods:

• Q3 return better than expected after a weak H1 2020
• Expect good activity in Q3 and into 20201
• In 2021 aggregate sector revenues to increase by 5% after a more than 8% drop in 2020
• Driven by economic growth and increased industrial investment in most end markets
• Customer activity is linked to the economic cycle
• Best share performance to be seen in APAC region
• However, do not miss a N. America and European bounce

Consumer Cyclical:

PowerPoint Presentation

• Retail sales declined by 5% in 2020
• Investors are looking for an earning recovery
• They will gain 4% in 2021; it will not be even

• ❖  Africa 1% ~ 3%
• ❖  Asia 5% ~ 7%
• ❖  Europe 1% ~ 3%
• ❖  North America 4%~6%
• ❖  South America 2% ~ 4%
• COVID-19 accelerated the questions over a bricks and mortar retail approach
• Consumers will increase migration to online
• This will require sellers invest in sophisticated order and delivery systems
• High end luxury will thrive
• There will be more bankruptcies among once famous names

Financials:

• Financial services successfully migrated online
• Banks were crucial in stabilising the economy
• Transmitted government stimulus and relief programs
• Consequences of COVID-19 not on the same scale as those during the Global Financial Crisis of 2008–10
• There will, however, be a new competitive landscape
• Branches will close amid increased digitalisation
• COVID-19 has shown only competent digital banks will survive…
• …Focus on social distancing, personal safety etc.
• Progress fettered as deep provision for NPL’s is made
• In the US, Average ROE fell to 5.6% in 2020, this year will be 8.0% but in 2022 it will bounce to 11.6%

Travel & Tourism:

• Last year really dealt the sector a severe blow … -54.2% by April
• United Nations World Tourism Organisation (UNWTO) show that international tourist arrivals declined 70% in the first eight months of 2020 cf. 2019
• Amounts to 800 million fewer international arrivals year-to-date for 2020, and a loss of S$730 billion in tourism revenues
• There have been signs of tourism demand shifting to domestic travel in China
• Once vaccines are widely adopted Europe and America’s can follow
• 80% of industry experts expect a recovery to begin in travel during 2021…
• …However, the industry will not be at pre COVID-19 levels until 2023

Consumer Staples:

• Consumer Staples 6th best sector in 2020
• e-Retailing continues to surge
• Over 50% of e-commerce in 2018 will be in China
• The recovery reversed in October because money has moved to cyclicals
• In retailing the timing and trajectory of the recovery back to pre-pandemic norms is up for debate
• Until there is a full return to the workplace the market dynamic for “Staples” looks favourable for online sales
• There will be a greater presence for the “disruptors”
• Store chains with heavy value of “Bricks and Mortar” assets are set to struggle
• Increase in M&A as bottom line is squeezed
• With over 260 sub groups it is often hard to be in the right area of a key defensive sector

Health Care:

• National health services under budget strain, globally
• However, state budgets will rise by 6% as public will demand greater resources post COVID-19
• State systems cannot have a blank cheque, they have to be accountable
• Can health services smoothly deliver the vaccine?
• There will be a struggle to recover lost ground in non COVID-19 care
• Can Biden afford to reverse light touch to US regulation
• Biotech firms to work even closer with “Big Pharma”
• Expanded use of smart computer modelling for trials
• This is an industry where R&D will garner high levels of investment attention

Tobacco:

• Sales declined in 2020, however, operating profit is set to rebound 5% ~ 10% (Moody’s)
• Long-term impact of COVID-19 on consumption too early to gauge
• Traditional tobacco sales will decline5% as consumers switch to lower priced products
• This hasten the move to alternative products although this will see tighter regulation
• The curiosity is the regulation will prove a barrier to entry and so protect profits of existing key players
• Leverage ratios will continue to improve despite high dividend payments
• Free cash flow and available cash balances will be used to repay pending debt maturities

Utilities:

PowerPoint Presentation

• Global utilities face 2021 with issues of how supplies are provided front and centre for the industry
• Competition authorities will investigate the excess of “Monopoly Power”
• Therefore, can the leading incumbents retain their level of market share?
• Challenge is delivering for customers and shareholders at a time of transformation
• Internet of Things (IoT) will drive the “Smart Home”
• This will drive a world of Demand Side Response (DSR)
• Major hurdles to overcome are: ❖ Decarbonisation with 2030 and 2050 targets ❖ Security of supply – especially for water
  ❖ Affordability of supply

• Are utilities sufficiently resilient to the pressures of changing demographics and climate?

Communications & Media

• Delays to events such as the Tokyo Olympics, European Football Championships and the latest James Bond movie hit revenues
• Advertising revenue fell 7% in 2020; it will rebound 6% in 2021 to $573 Billion (Magna Research)
• Advertising in APAC will grow the fastest
• US will be slowest after the 2020 election $ splurge
• The shift in advertising to online will continue
• Thus, print advertising will retreat further
• TV advertising will rise 2% (Zenith Media) and radio by 1%
• Cinema badly needs a return of customers, however, they may only make money on blockbusters
• On demand and streaming will rise dramatically as many movies will go straight to Amazon, Netflix etc

Defence:

• Delays to full capacity commercial travel means defence contractors will outperform civilian plane manufacturers
• Countries will spend on strengthening their military forces as geopolitical tensions intensify
• Global defence spending is expected to grow 2.8% in 2021, so exceeding $2 Trillion mark
• Under Biden defence spending in the US is likely to remain flat in 2021
• As funding continues to increase and costs decline, the space industry will experience increased opportunities
• Look for growth in secure satellite broadband
• Space will increasingly become a military domain and so space launch services are also expected to record strong growth of 15% YoY in 2021 (Deloitte)

Energy:

• Demand for energy collapsed during the pandemic
• On April 20, 2020 WTI closed at -$37.63/barrel
• Since then crude oil volatility as barely flickered
• Little improvement seen in the market in H1 2021
• The long-term, H2 2021 and 2022 one can be optimistic about a rebound of oil demand
• OPEC+ will be the dominant factor for 2021 oil supply
• Under Biden we may see oil flows from Iran and Venezuela
• Prices will slowly rise in H2 2021, however, caution is advised, given uncertainties regarding OPEC spare capacity and COVID-19 vaccine deployment
• Renewables, nuclear, and renewable fuel growth to accelerate and further challenge fossil fuels

Technology:

PowerPoint Presentation

• The outlook for technology is stable
• It is supported by declining macro uncertainties and reduced supply chain disruption
• Industry volatility will reduce
• Secular growth supported by technology adoption across various industries will reduce the industry’s reliance on IT demand
• We look for single-digit overall technology hardware spending growth in 2021 driven by

• ❖  Data centre capacity expansion
• ❖  5G buildout
• ❖  Increasing content in auto and industrial functions

• M&A to continue fuelled by

• ❖  Investor confidence
• ❖  Innovation stream
• ❖  Cheap capital
• ❖  Push to create earnings growth by acquisitions

Foreign Exchange Rates

Technical analysis in each chart is over the 12-Month trading range

EURUSD: In 2021; $ will make gains

GBPUSD: £ to fade as BoE go negative

EURGBP: € will gain as Brexit bites

USDJPY: Ready to breakout for $ gains

USDCHF: Bear trend will reverse at 0.8372

USDCAD: 1.2971 is key to US gains

USDJPY: Break 104.66; heralds $ upside

BTCUSD: Can you handle the volatility?

Commodities Energy, Metals Food Products

Technical analysis in each chart is over the 12-Month trading range

Thomson Reuters/Core Commodity CRB

Crude Oil WTI USD/Barrel: Ignore the – ve

Heating Oil USD/Gallon:

Natural Gas USD/Mm BTU:

Gold USD/Troy Oz:

Silver USD/Troy Oz:

Copper USD/lb:

Iron Ore Fines 62% Fe USD/Tonne:

Grains…Corn USD/Bushel:

Grains…Wheat USD/Bushel:

Grains…Soybeans USD/Bushel:

Soft…Cocoa USD/Tonne:

Soft…Coffee USD/lb:

Soft…Cotton USD/lb:

Soft…Orange Juice Concentrate USD/lb:

Soft…Sugar USD/lb:

Meat…Live Cattle USD/lb:

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