COVID-19 is no longer the main driver in the market

Análises dos mercados financeiros e de commodities

Market Watch review. 17.03.2021

In today's release, we’ll cover the following topics:

  • Goldman Sachs predicts the growth of the US economy. 
  • The main interest rate of the Federal Reserve. 
  • Inflation in the USA. 
  • US oil reserves and inflation in Canada. 

Let's start today's release with rather optimistic statements by Goldman Sachs analysts, who predict a rapid growth of the American economy in 2021. We are talking about 7% growth of US GDP - the highest rate since 1984. Let me also remind you that in 2020 there was a record decline in the US economy over the past 70 plus years - GDP fell by 3.5%. 

The optimistic forecast of analysts can be achieved by allocating the next package of financial assistance from US President Joe Biden in the amount of $1.9 trillion, which has already been agreed and signed at all levels.

Partly, the market already takes into account the allocation of this amount. The S&P 500 and Dow Jones indices continue to update historical highs, thereby providing quite a strong help to commodity markets and keeping them from more powerful sales. At the same time, there is still no unidirectional price movement in the foreign exchange market. Most likely, the uncertainty in the forex market is due to the expectation of the announcement of the results of the vote on the main interest rate of the US Federal Reserve. 

We have smoothly approached the main event of the current week, and perhaps even of the month – this is the decision on the key interest rate of the Federal Reserve and the following press conference. Let me remind you that the probability of a rate change is extremely low, but comments can have a very strong impact on the stock market and, as a result, on the US dollar. The reason for the concern is consumer inflation in the United States, the rapid growth of which may provoke the head of the Federal Reserve to attempt to manipulate the market, hinting at a willingness to raise rates if necessary.

This kind of manipulation is not uncommon for representatives of central banks, but in this case it may be justified and even appropriate. The bottom line is that consumer inflation in the US has already reached its highest level since February 2020 – since the beginning of the pandemic. In addition, the Fed has repeatedly noted the prospect of its further growth, which suggests the use of verbal interventions, thereby keeping the stock market from further growth, which noticeably intensified at the time of agreeing on financial assistance for businesses and the US population in the amount of $1.9 trillion.
And in conclusion, I will note the upcoming publication of the report on inflation in Canada, as well as data on oil reserves in the United States. Both releases will take place today during the US trading session. More significant for traders may be the data on oil, as the next increase in reserves is unlikely to go unnoticed. As a result, at the time of publication, I do not exclude a significant increase in trading volatility in the black gold market, which will also affect the Canadian dollar.

Closely monitor the news background and be prepared for all the surprises of the market.