Travel sectors see growth opportunities in 2021

Posted on December 9, 2020December 10, 2020 by Vrasidas Neofytou

The global pandemic and the economic shutdowns have been devastating to the travel sectors in 2020, but optimism surrounding vaccine developments has boosted confidence of a smooth economic reopening in 2021.

50% of the global population is expected to receive a vaccine until next May, allowing consumers to travel and gather safely in public spaces, reversing the investing outlook for the travel and tourism sectors.

Industries such as airlines, hotels, leisure, entertainment, tour operators, casino, cruise lines, and restaurants which underperformed during the pandemic, are expected to have a sustainable recovery next year as the virus will be under control. With vaccines on the horizon, investors have already started positioning into travel stocks, with some of them posting their best monthly performance in November since the start of the pandemic.

Copper and industrial metals hit multi-year highs on robust demand

Posted on December 9, 2020December 9, 2020 by Vrasidas Neofytou

Copper, aluminium, and other industrial metals have enjoyed impressive run-ups in the second half of 2020, driven by the expectations for a full global economic recovery in 2021, the “green” investments, and supply disruptions in South America. Copper is widely considered as the bellwether (leading indicator) of the global economy as its demand depends on global growth.

It is anticipated that an effective coronavirus vaccine together with a mass vaccination in the first half of 2021, could help bring an end to the pandemic and reopen the global economy, boosting the demand and consumption of industrial metals.

The rally has fuelled from the strong industrial demand from China and South Korea, the massive infrastructure spending from the global governments, the cheap liquidity in the money market, the potential for more US stimulus, the optimism over coronavirus vaccines, and the weaker US dollar.

The price of Copper has seen a tremendous rally during the last weeks, climbing to the highest level since March 2013, touching 3.50 per pound. The red metal has risen almost 25% this year and 60% from March lows, on pace for its best year since 2017. The prices of aluminium and iron ore have also recovered from their lows in April.

The US dollar which is the de facto global currency accepted for trade throughout the world has slipped to 2-year lows against most currencies, making the dollar-denominated metals such as base metals more attractive to buyers with foreign currencies.

The first lockdown measures applied in March-May to stop the spread of the virus had hit massively the manufacturing and construction activity around the world, sending the demand and the prices of the base metals to multi-year lows.

Strong demand from China:

Primary industrial metals such as Copper and Aluminium have seen their demand recovering at record levels during the second half of 2020, especially from China, which has historically been the world’s biggest commodity consumer (by 50% of the global demand). China was the first country that exited from the Covid-19 crisis, with its economic growth rates rebounding to pre-pandemic levels.

The base metals benefited from the unprecedented infrastructure stimulus from the Chinese government, allowing the strong restart of the activity of some local industries such as the construction, manufacturing, automotive, and solar-green energy sector.

The use of copper and aluminium in automobile and construction sectors has taken off in the last decade, thanks to their good conduct of electricity, recyclability, and lightweight. The demand for base metals is expected to skyrocket until 2050 amid the greater use of electric vehicles, wind turbines, solar panelling, and expansion of renewable energy capacity to cut carbon emissions.

Arising Risks:

There are some potential headwinds in the global market which could damage the recent euphoria in the metal market. The renewed trade tensions between China and the USA, which are the largest economies of the world, together with the no-deal Brexit and the concerns over the record-high Covid-19 infections, could harm the demand for industrial metals.

Euro trades above 1.20 while the US dollar drops to 2-year low

Posted on December 3, 2020December 3, 2020 by Vrasidas Neofytou

Forex traders are positioning their funds to more risky currencies following the latest vaccine optimism, the growing hopes for more stimulus plans, and the ongoing rally in the global stock markets and commodities.

The risk-on sentiment propelled a reversal investment trend in the forex market, sending investors away from the “safety” currencies and into risky currencies. As a result, the “safe-havens” such as the US dollar, Japanese Yen, and the Swiss Franc experienced significant losses in the past weeks against “risk-sensitive” currencies such as the Euro, Sterling, and the dollars of Australia, New Zealand, and Canada.

The emerging markets and the exporting-focus economies will be benefited the most from the expected reopening of the global market and trade environment in a “Covid-free” 2021.

US dollar slides to 2 years low

The DXY which is the US dollar index against a basket of major currencies broke below 91 levels on Thursday for the first time since April 2018 amid expectations for an agreement on fresh relief pandemic-related stimulus package for the US economy and hopes for mass vaccinations.

The US dollar lost ground on the hopes that the US legislators will soon reach an agreement of a $908 billion stimulus bill, despite the current disagreement between the Democrats and Republicans in Congress. The new package will create more inflation pressure which is against the value of the US dollar.

Also, the greenback received more pressure yesterday amid the growing worries for the current situation in the US economy after the disappointing US job numbers for November together with the rising infection numbers which forced some States to re-introduce some restriction measures to control the disease.

Mass vaccination boosted risky currencies

The appetite for risky currencies boosted on Wednesday after Britain became the first country in the world to approve a Covid-19 vaccine developed by the group of Pfizer/BioNTech. British top health officials confirmed that they would start vaccinating those groups of people with the most risk as soon as early next week. European Union and US health authorities are due to approve both vaccines from Moderna and Pfizer in the next two weeks, starting also the first vaccinations by year-end.

The recent weakness in the US dollar, the promise of the Federal Reserve to keep the interest rates low for a longer time, together with the vaccine-led risk appetite have helped all the risk-sensitive currencies to climb at multi-year highs.

Euro broke above the psychological level of $1.20 for the first time after 2.5 years, supported by the stronger Eurozone macroeconomic figures and decreasing Covid infections, while the British Pound rose to $1.35, a three-month high. Both currencies have also received support from the progress on the Brexit negotiations with the hopes for a trade deal by end of 2020.

The commodity currencies Australia, New Zealand, and Canadian dollars have also climbed to their strongest level in 2 years versus the US dollar, supported by the weakness of the greenback, the economic rebound in China, and the recent rally in commodities (Copper, Crude oil, Silver, Grains Industrial metals).

What to expect in markets and equities?

Posted on December 3, 2020December 10, 2020 by George Kessarios

According to sources, one of the first priority of the Biden administration will be to smoothen out trade relations with Europe. Relations with China will also improve, although we will not return to a pre-Trump era soon. Reducing trade tensions is positive for the global economy.

While markets are at a premium, in no way are their valuations extreme. Yes, there are many individual names that are trading at extreme valuations, however, the market overall is not.

Furthermore, I have said on several occasions, a higher market PE might be the new norm from now on. And while this is currently only a theory that has yet to be confirmed, for the time being, it seems to be playing out.
How about Growth vs Value? While we do not distinguish between growth and value, the so-called growth stocks have been on a multi-year run vs their value counterparts. We have been seeing a rotation out of growth for a while now, especially in names we think have extreme valuations. The question is, can this continue? The answer is yes. And if history is a guide, this rotation could last for several years.

Which brings us to the Dollar. lower trade tensions, fiscal, and liquidity support is a default risk-on trade, and a proxy for a lower dollar. While have been bearish on the dollar for a while now, we continue to think the dollar could go lower over the next several months.

Markets at record highs after UK vaccine approval

Posted on December 2, 2020December 2, 2020 by Vrasidas Neofytou

The global markets finished the first day of December in green, adding to their November’s sharp gains. The risk appetite increased from the positive news around the UK approval of Pfizer’s vaccine, the hopes for more U.S. economic-fiscal stimulus as well as from the expectations for a Covid-19 vaccine-led global economic rebound in 2021.

The British Medicines & Healthcare Products Regulatory Agency (MHRA) approved in early Wednesday the Pfizer/BioNTech coronavirus vaccine for use, with distribution beginning next week across the UK. This development had made the United Kingdom the first country in the world to authorize a coronavirus vaccine.

The American pharmaceutical giant Pfizer and its German partner BioNtech announced that they are ready to deliver the first doses of the vaccines to the UK immediately, saying that it is a historic moment in the fight against the pandemic.

European Union-US pending vaccine approvals:

The positive news from the UK is likely to be extended in the European Union shortly, as both Pfizer/BioNTech and Moderna announced on Tuesday, that they have applied to European authorities for emergency authorization for their Covid-19 vaccine candidates.

Pfizer expects its vaccine could be launched in the European Union as early as this month, though a European regulator clouded the schedule when it said it would complete its vaccine’s review by Dec. 29.

Also, Moderna reported on Monday, that it has also applied for a similar approval from the US health authorities, after full results from a late-stage study showed their candidate vaccine was effective by 95%, with no serious safety concerns.

Meanwhile, top U.S. health officials announced plans to begin vaccinating Americans against the coronavirus as early as mid-December once regulatory approvals are in place (probably until Dec 17).

Market Reaction:

All major US indices such as Dow Jones, S&P 500, and Nasdaq Composite gained more than 1% on Tuesday, closing near their record highs. The indices had one of their best one-month performance in November in more than 30 years, posting nearly 11% monthly gains.

The November rally was propelled by positive vaccine news from the pharmaceutical companies Pfizer/BioNTech, Moderna, and AstraZeneca. The vaccine-led market optimism has pushed investors away from the “safe-haven” assets (gold-treasuries) and into the risk-sensitive cyclical stocks and commodities (crude oil and industrial metals) that are likely to outperform during the reopening of the global economy in 2021.

The risk-on sentiment got an additional boost yesterday after the Republicans and Democrats lawmakers submitted a proposal for a second economic stimulus plan for the US economy. Investors expect the bill to be passed from Congress by the end of December or in the worst case, just before the elected Democratic president Joe Baiden take the control of the White House in late January 2021.