2021’s Winners and Losers
2020 was a unique year for the markets with assets booming and crashing at record levels of volatility. As part of this blog we are going to look into some of the assets which are performing exceptionally well and poor so far this year including both currencies, stocks, and commodities. The price movement and sentiment is mainly linked to technical and fundamental elements of the market which we will venture into for each asset separately.
The US Dollar
In 2020, the US Dollar had a difficult year due to different elements such as COVID-19, lockdowns, risk appetite and poor economic statistics such as employment figures. Though this year the movement has been very different so far. Looking at the US Dollar Index in the first week of the year we can see the price hit a low of 89.12. Currently, the US Dollar index is trading at 92.530, measuring an increase of 3.90% since the start of the year. For currencies indexes this is a significant amount. Though this figure is quite a way shy of the 7.70%, which the Dollar declined in 2020 from start to finish. Nevertheless, the movement is still well-welcomed by Dollar traders who have seen the price correct within 3-months by over 50%. When looking at certain currency pairs we can further see the positive movement; the EURUSD has dropped by over 500 points so far this year, the NZDUSD by almost 5% and the USDJPY by 5.80%.
So let’s look at why the price movement of the US Dollar has suddenly changed. Firstly, the improved employment figures is a clear standout. In February, the number of nonfarm payrolls increased by 379,000, significantly exceeding the expected value of 182,000. Additionally, the unemployment rate fell to 6.2%, instead of the expected retention of 6.3%. When we compare the unemployment rate now and 6 months ago, we can see the improvement in the employment sector regardless of the figure continuing to remain much higher than traditional US unemployment rates. Six months ago the unemployment rate was released at 8.4%, meaning an improvement by over 2%.
Lastly, we also have the extra financial stimulus injected into the economy by the new president and positive comments from the Central Bank regarding the recovery of the economy. The Chairman of the Federal Reserve confirmed the economy is indeed recovering as the levels which are satisfactory to the central bank. In addition to comments by the regulator, the Treasury also advised the stimulus introduced by the latest government will not result in unwanted and harmful levels of inflation.
The market’s main “Safe Haven” asset has to be one of 2021’s most bearish assets, though many traders are questioning whether this will continue. Many analysts such as individuals from Goldman Sachs have advised that while we continue to have COVID-19 affecting the economy and regions re-entering lockdowns, we still have high chances of seeing Gold prices elevated. That being said, the year has been very bearish for the yellow metal.
At the start of the year the asset was priced just above $1,900, and during 2020 we saw a price high of $2,075. Based on these two figures, the price of the asset is currently trading over 9% lower than the beginning of the year, and 16.5% lower than the price high seen in the summer of 2020.
Looking at the latest developments, the Societe Generale’s analytical agency published a global analysis of the precious metal market. According to analysts, this year the outflow from the reserves of gold ETF-funds exceeded 112 tons, while the cost of the metal itself has decreased by more than $200. This indicates that outflows have a greater impact on price than the inflows seen last year. The main driver of such dynamics continues to be the situation on the bond market. If the yield on securities continues to grow, gold quotes will decline. In addition to this, traders are able to look at the correlation between the US Dollar and Gold, as well as general economical lockdowns which have also proven to be correlated over the previous 12-months.
As we have looked at both a currency and a commodity, I think it’s only appropriate to also look at one of the most popular stock based indices. The NASDAQ is made up of 100 US based stocks, mainly companies which are established in the technology industry. It is difficult to determine whether the asset should be part of the winner, or loser groups as we have had strong price movement in both directions. Though it should be noted that sentiment regarding the asset remains low after the latest collapse which lasted three full trading weeks and the largest bearish movement since August 2020.
The asset started the year strong, up the mid-February where the bearish movement kicked in. Up to this period the asset increased by over 9.50% and hit an all time high of $14,095. Up to this point all was going well for the market’s buyers. However, the mood changed quickly as the asset for the next three weeks collapsed by over 12%. For this reason, it has been one of the more interesting assets with price movement in both directions.
The movement of the asset has been motivated by two theories, hence why we have seen two different movements this year. Whether the instrument is overpriced, or if the momentum will kick start again; we have had positive fundamentals from the main companies related to the NASDAQ such as Amazon and Netflix. Though fundamentals from other major stocks such as Tesla and Apple have not been so promising.
For example, Tesla is under pressure from several news stories, including China’s restrictions on the use of corporation vehicles by military and government officials for security reasons. At the same time, the company’s main competitor in the Chinese market, Geely, announced plans to present a line of electric vehicles of the new brand. Also, Volkswagen presented a medium-term development strategy with a focus on electric vehicles, with a sales share of more than 70% in Europe and more than 50% of global sales by 2030.
Our blogs, chart analysis and webinars are here as informative and educational material in order for traders to have the relevant information and education to make factual decisions. As per our webinars the market is continuously volatile and the trends are changing. Hence why it is vital our market participants ensure they read the latest developments and indications, as well as amending their positions according to the latest findings.