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Blue Sky Market Predictions
Contents 02 Blue Sky 2021 Market Predictions 03 05 08 10 Will the dollar lose Can gold hit the Will oil reach $100 Brexit… Will the European its reign in 2021? $4000 mark? a barrel? Union fall apart after Brexit? 13 15 17 19 Will Exxon & Will the pharmaceutical Will bonds send banking New Zealand, the first survivor Chevron merge? industry bubble burst? sector into collapse? of the coronavirus pandemic? Futures contracts and CFDs are leveraged products and can result in losses that exceed deposits. The value of your contract can fall as well as rise. Losses may exceed deposits
2021 Blue Sky Market Predictions
2021 Blue Sky
Market Predictions
2020 was a year of surprises and disasters, in which the global economy entered the worst
recession since the Second World War. Great economies have fallen one after another in a sharp
contraction with many recording an unprecedented drop in the second quarter of 2020. Covid-19’s
impact has caused many political and economic tensions, which were partially reflected in the US
presidential election. Unlike the 2008 economic crisis, we have no real historic reference for what
a global pandemic will do to the world’s economies or how quickly they can recover, what we do
know is both cause high volatility in the markets.
Either way, 2021 does not seem to be the year of instant salvation from the effects of the Covid-19
pandemic. The vaccines that were announced in November 2020 do not mean that we will instantly control
the pandemic, the world will need several months before the effects of the vaccine programs begin to show.
Expectations for 2021 may be shocking, but if they are fulfilled the world is now potentially on the brink of
major changes that may last for years.
Traders will be following the fate of the US dollar after the implementation of federal and government
stimulus packages, through which trillions of dollars were spent to lift the economy out of its recession.
Attentions will also turn to gold, which historically has witnessed spikes once inflation starts to kick in
globally.
As for followers of the energy markets, they may find it entering a new era in 2021 potentially rising
significantly, after a sharp drop in prices in 2020. This could start once global demand returns to its previous
levels before the pandemic in 2019, when the average daily demand for oil reached about 100.1 million
barrels.
Perhaps expectation may not be limited to the above, but Brexit followers will also wonder whether the
United Kingdom leaving the EU will trigger a domino effect in the European Union.
Moreover, the US political changes and the transfer of presidential power to the Democratic Party may
generate a sharp change in the levels of American, European, and British debt as governments look to spend
their way out of the recession. This comes at a time when China continues to reduce its possession of
American bonds, thus impacting the world’s banking sectors. Japanese and Swiss bonds have also become
unappealing to investors due to their negative returns.
Potential mega-mergers, the possible bursting of the pharmaceutical industry bubble, and nations trying to
survive the pandemic and leave the 2020 crisis behind could re-define the parameters of the international
economy during 2021.
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2021 Blue Sky Market Predictions
Will the dollar lose
its reign in 2021?
The US dollar fell against a basket of major currencies after touching its highest point on 20 March, 2020.
The dollar index lost more than 11% of its value since then, affected by many variables, the most important
being the US Federal Reserve's quantitative easing program and the US government’s massive provision of
economic incentives in excess of 3 trillion dollars. However, by looking into the latest World Economic Forum
report, “From taxes to transport: visualizing America's $27 trillion debt”, one of the main reasons that pushed
the dollar to decline could be that countries decreased their holdings of US government bonds, and their
possession of the dollar, amid dramatic drop of bond yields during 2020 – which have returned to negative
levels (taking inflation into account).
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2021 Blue Sky Market Predictions
Will the dollar lose its reign in 2021?
According to the Statista database, the largest holders of US bonds are Japan, China, and Britain. Japan owns
an equivalent of $1,269.5 billion of bonds, followed by China with $1,054.0 billion and Britain with $442.8
billion. US Federal Reserve data shows the world's holdings of US bonds amounted to almost 7.07 trillion US
dollars in September 2020. We must also acknowledge that China no longer holds the most US bonds in
2020! China's holdings of US bonds have decreased since their peak in December 2017 (1,184.9 billion US
dollars) to the 1,054.0 billion levels, with inevitable consequences for yield returns.
On the other hand, we must note the massive increase in US debt, which has ballooned to 27 trillion US dollars
according to the World Economic Forum. We must also consider that the US gross domestic product
decreased during 2020 after the record contraction that the economy was exposed to during the first half of
the year, and a contraction of 31.4% during the second quarter alone. In April 2020, the US GDP fell for 12
months to 19.5 trillion dollars due to the coronavirus pandemic further widening the gap between US GDP and
US debt.
Looking at the US Federal Reserve, we will notice that the Fed’s spending increased by more than 30% during
2020, and this increase is much greater than the peak of the 2008 global financial crisis when spending grew
by less than 25%, noting that the Fed’s spending during the 2008 crisis was over two years. During 2020, this
increase occurred over a few months only.
China dropping a large portion of its US bonds holdings, along with the huge deficit in the US government debt,
accompanied by a drop in US GDP, are all factors that are weighing heavily on the US dollar. This, combined
with the current very low US government bond yields, will likely reduce demand for the dollar even further.
Moreover, the victory of Democratic candidate, Joe Biden, in the 2020 US elections is not necessarily a
positive factor for the dollar. Biden's win could put further pressure on the dollar as the former vice president
will seek to implement major financial stimulus plans to support the economy to pull it out of the coronavirus
crisis. More government and federal stimuli should mean one thing – a drop in the dollar value. But with most
economies under pressure, where do traders turn, to other asset classes?
With Biden's victory, political relations between the US and many emerging countries may gradually improve,
preserving their country’s currency, which may indirectly cause a decrease in the dollar’s demand and affect
it negatively.
It seems that the expected fall of the US dollar is a common sentiment in the market, with the Financial Times,
like many agencies and banks, prophesizing that the coronavirus vaccine would further weaken the dollar. If
the coronavirus vaccine succeeds and the pandemic is controlled, this would push traders and investors
towards financial assets other than the US dollar, especially in emerging countries where stock indices fell
significantly during the pandemic, and this may push the dollar into a violent decline during 2021.
With the US dollar expected to lose some of its lustre, central banks and investment portfolios may also
reduce their holdings of the US dollar to diversify their currency basket. However, 2021 will be a year of
competition, the dollar will still remain the most traded currency in the world but other currencies will be
fiercely challenging for the crown.
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2021 Blue Sky Market Predictions
Can gold hit
the $4000
mark?
Gold has always been a safe haven that saw strong rallies during crises. In that sense, the end of the
Covid-19 crisis may indicate a turning point for the bullish rally, although the precious metal also acts
as a hedge against inflation. With the injection of huge amounts of money into the global economy in
2020, any evidence of rising consumer prices may push investors back towards the precious metal.
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2021 Blue Sky Market Predictions
Can gold hit the $4000 mark?
What happened during 2020
Gold was one of the shining stars in 2020, as the flood of money printed, a weaker dollar, and global
uncertainty increased the demand for gold, and the decline in the real term prices of US Treasury bonds
helped to strengthen the metal’s position during July and August, recording new record highs at 2075 dollars
an ounce.
Although the price has dropped since then, the demand for gold through ETFs has continued to rise, reaching
a peak, according to data released in October, with nearly 900 tons of the metal produced in 2020, more than
double 2019.
Vaccine announcements against the coronavirus caused gold to suffer its second-largest drop in seven
years in November 2020, and the buying bets on hedge funds settled near their lowest levels in 17 months.
Is it possible to see gold at $ 4000 an ounce?
Most forecasts indicate that gold will rise to new highs during 2021, with Goldman Sachs expecting gold to hit
$2300 an ounce. While the Bank of America lowered its forecast for the coming year from $3000 to $2000
an ounce after the vaccine announcement, it stressed that the strong financial and monetary stimuli in 2021
will push prices higher.
Gold prices may rise this year, and perhaps financial institutions will renew their expectations for the precious
metal, projecting a rise towards the levels of $3000 an ounce. This is mainly due to the prospect of a bigger
than expected US government stimulus plan which may push gold back up to its shining status.
But what about $4,000 an ounce? This should not be ruled out! The political tension left by the US President
Trump’s era threatens the external political stability of the US. Likewise, no one is sure that the Covid-19
vaccines will be able to restore global economic balance.
Developed countries will receive the vaccine, but developing and emerging countries may not be as fortunate.
Thus, the global economic recovery may be relevant to major economies only, while emerging countries may
remain under the threat of recession in 2021.
A weaker dollar due to monetary and quantitative easing policies from the Fed, in addition to the US
government's stimulus policies, and weakness in the economies of emerging countries, may push many
investors to seek gold as a safe haven, pushing the price of gold towards levels far above $3000 an ounce,
especially if any new political crises occurs.
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2021 Blue Sky Market Predictions
Can gold hit the $4000 mark?
Now, let us explain the reasons that lead us to believe that a further
rise in gold prices may be likely:
Higher inflation
Inflation will be key to any outlook now. Returning to gold, we find that in 2011 it reached its highest levels at
$1920 an ounce, immediately after the global financial crisis in 2008-2009, when central banks began
large-scale quantitative easing which raised fears of excessive inflation. According to Goldman Sachs,
expectations indicate that inflation in the US during 2021 will rise by 3%, which will contribute to increasing
demand for gold.
The decline in the US dollar
In 2021 large-scale expansionary policies will probably be implemented by the US Fed and US government to
push the global economy away from a recession, this will put pressure on the performance of the US dollar
and support gold.
Goldman Sachs expects a massive fiscal stimulus package as the first step on Biden's agenda, in addition to
the prospects of keeping interest rates at historic lows for a longer period.
A possible recession of the global economy
The global economy is likely to suffer greatly in the coming period, if there is a sharp contraction in GDP, an
increase in financial expenditures, and a doubling of central bank budgets, which may cause currencies to
suffer pressure pushing traders to gold.
Important factors to consider that may push gold prices to levels above $3000, even up to $4000:
An internal or external American political crisis
that reduces dollar demand in the world's banking reserves.
An unexpected deterioration in the global economy due to the
failure to control the coronavirus pandemic, even with a vaccine.
A new collapse in global bond yields, pushing the
safe-haven and hedging demand higher for precious metals.
Technically, gold in 2020 was able to achieve record levels never seen before, recording the highest price per
ounce at levels of $2074, a 64% rise from the opening price at the start of the year.
However, at the end of 2020, gold faced corrections towards the $1765 level. Gold is likely to witness further
hikes in the coming period and until late 2021. The precious metal may target its historical peak, the $2074
level, and if bulls were able to breach that level it may reach record levels of $2500 - $3000.
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2021 Blue Sky Market Predictions
Will oil reach
$100 a barrel?
A sharp dispute between major oil producers at the beginning of 2020 led to a collapse in prices to their
lowest levels in history. On April 20 2020, WTI contracts fell below zero for the first time in history, to
record the price of a barrel of oil below -36 dollars, while Brent crude fell below $20 a barrel for the first
time since 1999.
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2021 Blue Sky Market Predictions
Will oil reach $100 a barrel?
The main factors in that collapse were the price war that occurred between Russia and the Kingdom of
Saudi Arabia after Russia refused to reduce production and the spread of the coronavirus pandemic.
With the spread of news of drug companies racing to obtain permits to use their vaccines, a state of
optimism took over the markets and oil prices rose in November 2020 by about 36%, despite their decline
by 31% since the beginning of 2020.
Although global oil demand has been affected, especially in Europe and the United States, the market is
already witnessing a decrease in stocks that accumulated during the first and second quarters of 2020,
which is a strong sign of a recovery in demand. Additionally, China is withdrawing its high inventories due
to high domestic demand and low imports.
According to the US Energy Information Administration (EIA), it is expected that the average price of Brent
crude will reach $79 a barrel by 2025 and that global demand will push the price towards the levels of $98
in 2030. By 2040, oil is expected to reach $146 and even beyond that level in 2050 towards $214. Cheap
oil resources will be exhausted, therefore increasing the cost of extracting it.
Also, the Organization for Economic Cooperation and Development (OECD) expects the price of Brent
crude to rise to $270 a barrel, as demand from China and emerging markets increases.
Before the Covid-19 pandemic, US and Brent crude prices reached around $65 a barrel and $70 a barrel,
respectively, supported by a historic agreement by OPEC+ to cut nearly 10% of production. However, the
closure measures caused by the spread of the coronavirus put further negative pressure on oil as global
demand went down.
What may support the rise in oil prices during 2021 is the Covid-19 vaccine, pushing life back to a sense of
normalcy, and stimulating the economy after the end of the lockdowns. The vaccine could also stimulate a
strong recovery in oil demand, at a time when the oil supply may be lower as a result of lockdowns and lack
of investment.
Technically, oil has performed negatively for most of 2020 due to the coronavirus pandemic. Currently US
crude oil (WTI), is testing a strong resistance at $45. factoring into the direction of oil during the coming
period. The next stop for oil will be at levels of $50 and $55 dollars per barrel.
Failure to surpass the levels of $45 may push oil to drop to levels of $40 and then $30 a barrel.
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Brexit… who’s next? Will the
European Union fall apart after Brexit?
On January 1, 2021, the UK entered a new relationship with its neighbors in the European Union, after
more than 4 years of tension between the two parties. The markets suffered pessimism at times, and
optimism prevailed at other times, but we will be facing the first case of separation from the European
Union, which is reaching a stage of integration between the member states.
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Brexit… who’s next? Will the European
Union fall apart after Brexit?
Nigel Farage, one of the godfathers of Brexit, predicts that the European Union will collapse in 10 years,
pledging to continue its campaign across Europe in the coming months and years. He also anticipates Italy,
Poland and Denmark to be among the first countries to follow the UK in its exit from the EU.
Italy would probably be the closest of the Big Four that would seriously consider aligning with the United
Kingdom if Brexit proves effective. According to survey data by Redfield and Wilton Strategies, nearly half of
Italians might then support Italy’s secession if they see Britain and its economy moving at a steady pace
within five years.
Last July, a new Italian party called "Italexit" was launched, just two days after Italy obtained a large slice of
the European Recovery Fund, a fund aimed at helping stabilize the continent's economy in the face of the
coronavirus epidemic, amounting to 750 billion euros. Like Farage's "Brexit" party, former TV journalist Gianluigi
Paragon, a member of the Italian Senate for the populist "Five Stars" movement, founded his "Italexit" as a
result of his opposition to the Five Stars joining the pro-European Union Democratic Party.
In light of the historical European Union budget of 1.82 trillion euros, and the coronavirus recovery package,
34% of Italians believe that remaining in the European Union has a negative impact on them, while 32% of
them believe that it has a positive effect on Italy.
The Brexit process may help spur voter support for right-wing and populist parties, and this can be seen
clearly in political life in Europe, where the “Alternative for Germany (AfD)” party has become the largest
opposition party in Parliament, and the “Vox” party in Spain became the third-largest force in Parliament.
The main factor for the prosperity of these parties was that Europeans were frustrated with the political
establishment, along with concerns about globalization and immigration, and the weakening of their national
identity. This was evident in the European Parliament after 9 right-wing parties formed a new bloc called
“Identity and Democracy” (ID).
The far-right may not come to power in any EU country now, but will be able to attract enough support to
shape the political debate, and thus influence the government's actions.
What we might also see is Scotland contemplating a vote on secession from the UK after Brexit, which was
attempted in 2014 and was rejected. In May 2019, the Scottish government presented the referendum bill to
the Scottish Parliament, passed at the end of 2019, and the Scots may try again in 2021.
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Brexit… who’s next? Will the European
Union fall apart after Brexit?
Will we hear about new exit terms in 2021? For example, in the case of “Frexit”, talked about by the former
French presidential candidate and leader of the French Nationalist Party, Marine Le Pen, or the “Nexit”, talked
about by the leader of the Dutch far-right, Geert Wilders. Will there be a separatist contagion in the new year,
possibly “Swexit” or “Czech-out? It seems that the sentiments already exist and may even be driven by the
secession of Britain, one of the economic powers that has always been very beneficial to the European Union.
After the violent decline faced by the Eurodollar (EURUSD) in mid-March 2020, due to the Covid-19 pandemic,
the pair succeeded in recovering and overcoming the sharp declines and recorded its highest peak since
2018 at 1.2150 levels, with a rise of approximately 14.33% from its lowest price.
In 2021, we may see a correction of the (EURUSD), with which it may target the support level 1.1600, and if
prices broke through that level, the pair may complete the correction to 1.1200 levels.
As for cable (GBPUSD), the pair was also able to recover from the pandemic and compensated for all its losses
in the first quarter of 2020, which exceeded ±15.50%. At the start of 2021, the pair is trading at a strong
resistance zone near the 1.3500, from which it might retreat to test the support levels at 1.2650.
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Will Exxon & Chevron merge?
Like most business activities, M&A (Mergers & Acquisitions) declined during the height of the Covid-19
pandemic. Uncertainty about future growth prospects made a lot of companies hesitant to make
deals. So, a lot of great, profitable U.S. businesses that might have looked into M&A are now sitting on
plenty of cash. Some might use it to increase dividends, buy back shares, or spend it on research and
development.
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Will Exxon & Chevron merge?
During the first half of 2020, some global industries and companies were annihilated by the pandemic,
especially those where recovery is less likely. They include airlines, cruise lines, department stores, smaller oil
producers, casinos, and restaurant chains.
After the massive drop in oil prices due to the very low demand and high supply, smaller oil producers like
Noble Energy, Marathon Oil, Apache Corp, Occidental Petroleum, and Devon Energy lost much of their share
value and almost went bankrupt. All these names have been impacted by the plunge in oil prices, and judging
by their stocks, markets have priced a real default premium.
However, economic boosts from the relaxed lockdown measures, OPEC+’s deal to cut production, and
massive stimulus packages, oil prices managed to climb back above $40 per barrel. This has saved some
companies from default, yet the risks are still great. In that sense, drastic action could be seen in 2021, with
Chevron and Exxon possibly contemplating a merger.
During October 2020, Chevron’s market cap briefly exceeded Exxon’s cap at $142 billion versus $141.6 billion,
respectively. It was particularly remarkable given that Exxon’s market cap was just under $300 billion at the
start of 2020. This merger would create an even larger goliath oil company that would be more efficient and
resilient during the upcoming years.
The rationale is that a merger would allow the companies to cut costs, reduce capital expenses, and
particularly for Exxon, re-establish a new dividend level to soothe investor’s minds. Exxon has been dealing
with constant speculation about whether it will have to cut its dividend because the company has not been
able to cover it with free cash flow. Exxon stock now yields more than 10%.
The new company would have a market cap of about $300 billion and a debt of about $100 billion. Together
the two companies make about $45 billion annually in operating cash flow, with $50 billion in capital expenses
and dividends that cost $24 billion annually.
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Will the pharmaceutical
industry bubble burst?
The shares of the pharmaceutical and biotechnology industry have greatly benefited from the Covid-19
pandemic, and recently, their share prices have increased significantly.
The Legal & General Global Health & Pharmaceuticals Index, which tracks the largest companies in the
industry, hit its highest level in May, as did other similar indices around the world including FTSE 350 and the
Nasdaq Biotechnology Index.
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Will the pharmaceutical industry bubble burst?
The US company, Vaxart, which is developing a potential oral vaccine, saw its shares multiply tenfold between
the start of the year and the end of April. Synairgen shares from the UK rose by more than 1,000% between
the start of the year and mid-April, as investors focused their plans to develop a Covid-19 vaccine. Both
Genexine in South Korea and Japanese biotech company, Takara Bio, have more than doubled their stakes
since unveiling plans to develop a vaccine.
Will the pharmaceutical sector bubble burst?
Despite the massive inflows of investment into the pharma and biotech industries, it may be too early to call
it a ‘pharma-biotech’ bubble that is similar to the ‘dot-com’ boom and bust cycle at the turn of the century.
This is because, while as much as $2 trillion was invested in dot-com companies at the height of the
‘dot-com’ bubble, such investments were made over the course of several years and after a lengthy build-up
of anticipation on the potential returns of the dot-com sector.
In contrast, the investments in the pharma and biotech sectors have been substantially catalysed by the
arrival of Covid-19. Anticipations for a vaccine and the financial returns that the pharma and biotech
industries can achieve with a successful vaccine are high. The recent pharma and biotech investment cycle
is arguably still at an early stage.
Another important point to note, is that central banks have been stimulating the markets at an
unprecedented rate over the last year. This fact in itself may inflate the stock market even further, including
the pharma and biotech stocks.
Are we due for a continuation of the pharma and biotech bull run?
Moderna and Pfizer ... the biggest investment risk in 2021
Moderna is the first company to emerge from the crisis when it announced the development of a potential
vaccine in February 2020 before Covid-19 was classified as a pandemic. Since then, the company's
revenues have grown at a robust pace of more than four times, nearly $30 billion in less than three months.
Moderna became the largest biotech IPO in history after its market value rose from $6.6 billion at the start of
2020 to $60 billion.
All this increase in value could indicate a bubble burst, and looking at the average fair value, we find that it is
about $116.90, as EPS fell to $1.62, while the real price of the share is trading near $177, and the stock may
return to levels of $100 again when the coronavirus pandemic appears to be under control.
Looking at the average fair value for Pfizer, we find that it stabilizes near the levels of $20, with earnings per
share stable at $1.55, while the real price of the share is at levels above the fair price, about double according
to the available prices in early December 2020.
Therefore, we should take into consideration that the increases of the pharmaceutical industry at present
may not be sustainable, especially because they do not reflect the real value of the share. These increases
are due to temporary factors with an improvement in the risk appetite of investors and the announcement of
vaccines.
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Will bonds send banking
sector into collapse?
Based on economic fundamentals, higher bond yields threaten bank deposits, because the higher
bond yields may attract investors to buy government bonds and other corporate bonds as
alternatives to cash deposits in banks. In order to finance their business, banks depend on client
deposits, especially large deposits. However, when bond yields become more feasible than bank
deposits, we will find a dramatic increase in withdrawals from the banking sector poured into bonds.
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Will bonds send banking sector into collapse?
Bond yields decreased dramatically during 2020, to the extent that market returns and real returns fell into
negative territory in several great nations, such as Japan, Germany, and even the US. Negative returns
prompted investors to search for alternative investments, but with very low-interest rates in central banks
around the world, the trend towards bank deposits remains limited.
Global interest rates in central banks are very low with Japan and Switzerland's interest rates at negative
levels. The European Central Bank’s interest rate is currently zero, while the US Federal Reserve and Bank of
England’s interest rates are also close to zero. With the need for banks to increase their lending, we find that
interest rates in commercial and investment banks have also decreased in line with central banks' interest
rates.
Lower interest rates mean lower earnings in the banking sector and financial companies around the world. For
instance, Citigroup's net income for the third quarter of 2020 declined to $3.2 billion, a massive decrease from
$4.9 billion for the same quarter in 2019. The reason for this drop is due to the decrease in revenue from
global banking operations by 7% according to their recent financial report. Another example is JPMorgan
Chase, where its credit sales are down 7%, and many banking companies are already suffering from falling
credit demand.
So, where bonds do stand in all of this?
Bond yields have decreased during 2020, in other words, investors did not buy bonds as a fixed-income
investment, but were rather used as a hedging tool to safeguard their portfolios against the Covid-19
pandemic. Even commercial banks own government bonds from different countries, and in particular US
government bonds. If government bond yields decrease further, this may cause banks' investment in bonds
to accumulate further losses. But what if the yields increased? This would be an incentive to reduce deposits
in banks and to move towards bonds. So, if bond yields rise significantly during 2021, or even if they decrease
significantly, this will have a direct impact on global banking sectors.
During 2020, 10-year US government bonds reached its lowest level in history at 0.36%, however, they
pulled back higher in December to almost 1%. 30-year bonds rose from its lows for the same period at 0.82%
to about 1.8%, the long-term bond yields stabilized, and the 2-year maturity bond is below 0.25% since April
2020.
The current levels for short-term bond yields at present may not attract many traders and investors, yet
higher bond yields with higher maturities may force liquidity away from bank deposits and towards bonds.
Simultaneously, banks may endure significant pressure due to their low-maturity bond holdings invoking a
deterioration in the reliability of cash distribution in the sector.
Central banks continue to provide stimulus packages, and governments provide all the necessary cash to
support the economy from the effects of the Covid-19 pandemic, which caused the worst economic
recession since World War II. This means a decrease in the purchasing power of cash which can be hedged
against by buying bonds.
However, with the decrease in low-maturity bond yields, the ability to hedge against the possibility of a
weaker purchasing power will weaken, increasing pressure on real returns adjusted for inflation in the banking
sector. With investments that do not meet the requirements of safe asset investments, we may witness a
large liquidity drop from the banking sector, sparking the beginning of the collapse that will appear first on
small banks, and gradually extend to the global banking sector.
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New Zealand, the first survivor
of the coronavirus pandemic?
The Covid-19 pandemic had a stunning impact on the global economy and has led to a permanent shift
in the operating landscape for millions of businesses. At a time when the accelerating spread of
Covid-19 is disrupting much of the developed world, the global economy was able to bounce back and
economic recovery around the world has been stronger and faster than many predicted.
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New Zealand, the first survivor
of the coronavirus pandemic?
New Zealand is one of the countries that was best able to tackle the novel coronavirus and is considered a
leading nation in the fight to control the pandemic. It was part of a small group of countries that
implemented well-targeted economic stimuli and well-organized pandemic controls, which includes China,
Korea, Taiwan, Australia, Japan and Singapore. New Zealand has outperformed most economically
developed nations in its containment of the outbreak, enabling a faster economic recovery with a low cash
rate, increasing government consumption expenditure, decreasing the unemployment rate, all of which are
expected to boost GDP growth in 2021-22.
While the world still recovers from the pandemic, how big will New Zealand's recovery be?
The Land of the Long White Cloud has set the gold standard in ‘curve crushing’, and for a short period
actually achieved a Covid‐free status. The number of total infections in New Zealand recorded in mid
December 2020 is 2060 cases. These numbers reflect the hard choices made by their policymakers to
curb the pandemic at the cost of their economy.
From an economic point of view, the impact of the Covid-19 pandemic on New Zealand’s economy was the
strongest in the second quarter of 2020. An extensive lockdown in the country during that quarter nearly
eliminated Covid-19, thus lessening pandemic restrictions. As a result, economic growth rebounded after
the first half of 2020. However, a small outbreak in Auckland, and ongoing restrictions on international
travel, have continued to place downward pressure on economic growth.
Based on “The Organization for Economic Cooperation and Development” September 2020 report, the
global gross domestic product will shrink by 4.2% in 2020, and will average around 4% growth for the
coming two years. That is a big improvement from what was projected in June – a 6% contraction this year,
followed by 5.2% growth in 2021. The organization credited the improvement to better-than-expected
outcomes for China and the U.S in the first half of 2020 and large-scale responses by world governments.
China's economic recovery will be a boost to its trading partner New Zealand, especially since the New
Zealand–China Free Trade Agreement is New Zealand's most significant trade agreement following the
“Closer Economic Relations” agreement signed with Australia in 1983. With relaxation Covid-19 restrictions
and more economic activities in the country, we expect this would boost the country’s exports to NZD
5100.00 million by the end of Q4 2020.
Futures contracts and CFDs are leveraged products and can result in losses that exceed deposits. The value of your contract can fall as well as rise.
20 Losses may exceed deposits2021 Blue Sky Market Predictions
New Zealand, the first survivor
of the coronavirus pandemic?
Other factors to consider are their recent retail sales numbers and Global Dairy Trade index readings. Retail
sales in New Zealand increased 8.30% in the third quarter of 2020, while the Global Dairy Trade Price Index in
New Zealand rose 4.3% in the week of December 1, 2020, the highest growth since July.
Moreover, trader sentiment towards the New Zealand dollar is becoming more positive. The (NZDUSD) has
been able to benefit from a drastic improvement in the broader financial market risk appetite (many major
equities’ indices posting their best months in decades), which was driven by vaccine hopes and US
President-elect Joe Biden’s 2020 election victory.
Technically, the NZDUSD pair succeeded in compensating for its losses resulting from the repercussions of
the coronavirus pandemic and recorded a strong rise from mid-March 2020 at the levels of 0.5460 until it
recorded an impressive rise of 29% on December 1, 2020 at 0.7050. This rally is expected to continue to
target the range of 0.7400 - 0.7560, represented by 61.8% Fibonacci retracement levels from the highest
peak in its history.
Futures contracts and CFDs are leveraged products and can result in losses that exceed deposits. The value of your contract can fall as well as rise.
21 Losses may exceed deposits2021 Blue Sky Market Predictions This document was prepared by Equiti Group’s research team members Raed Hamed Alkhedr Mohammad Shanti Muhammad Hisham Head of Market Research Market Analyst Market Analyst Sarkis Tchoporyan Mohamed Gahmy Amany Rasheed Senior Market Analyst Market Analyst Market Analyst Design and Illustrations Rajaa Azaizeh Sja Irshaid 3D and Graphic Designer Design Team Lead This informative ebook is coming from our internal Research Department and does not form an investment advice that clients should rely on without seeking independent investment advice .
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