Janet Yellen is the best and most skilled salesperson to drive the Democrats agenda. Greater co-operation between the Fed and Treasury is a match made in market heaven.
It is a very constructive backdrop for US equities after US Treasury Secretary nominee Janet Yellen performed admirably in her Senate hearing, stressing the need to “act big” on fiscal policy, at the same time acknowledging that over time the budget will have to be put “on a path that’s sustainable”.
Senate Republicans are of course resisting Biden’s USD1.9 trn package. Still, Janet Yellen is perhaps the best and most skilled salesperson to drive the Democrats’ plan in today’s highly bipartisan climate due to her impeccable resume, focus on low wage unemployment, and exemplary record steering the most influential central bank in the world, The Federal Reserve Board.
And when you have both Fiscal Stimulus (Yellen) and Monetary Policy (Powell) singing for the same hymn page suggesting greater co-operation between the Fed and the Treasury, it’s truly a match made in market heaven.
And as far as having the most proficient at the helm of the Treasury tasked with rescuing the US economy from the depths of the Covid induced recession through government intervention, The Queen Has Arrived, and the markets reacted in kind. The US dollar is down; equities are up, the US Treasuries curve is bear steepening – markets are again looking to get their reflationary mojo on with interbank liquidity returning from holiday mode.
Ahead of inauguration day investors continue to offer up a Biden policy seal of approval on the agendas sequencing with vaccinations plus stimulus now and taxes later, to drive risk through H1.
Goldman Sachs (NYSE:) blew away earning on the back of strong trading and investment banking revenue while Bank of America (NYSE:) unveiled decent results – mainly on the end of the release of loan loss reserves.
For those grounded investors that believe in the real economic indicators there is nothing like hearing from the CEO, where comments from BoA Brian Moynihan caught the market’s attention though “In the fourth quarter, we continued to see signs of a recovery, led by increased consumer spending, stabilizing loan demand by our commercial customers, and strong markets and investing activity.” That indeed suggests some positivity on the near-term economic outlook. It’s sound so much better hearing from boots on the ground than from house analysts on the 32nd floor.
The energy markets are racing higher out of the gates in Asia aided by a lower and hopes of a sizeable economic stimulus package from the Biden administration.
Energy traders are packing in a chunky stimulus-response that might matter to investors from both a commodity and currency perspective where the US dollar could weaken to oil prices benefit since crude is priced in US dollars.
The most favourable elixir of US stimulus and the imminent Saudi production cut bolstering efforts of OPEC+ to keep supply well below demand this year continue to help price action. Still, we are in a very susceptible period for oil as the market targeting vaccination rollout sights for a Spring Break reopening, hoping governments could feel comfortable lifting restrictions on economic life once the most vulnerable 20-25% of the population are vaccinated.
Overall, the policy mixes between OPEC+ current supply discipline coalescing with the Biden’s administration’s overarching focus on public health and economic responses to the COVID-19 pandemic, suggest oil prices can go much higher if the healthcare and logistical community can combine all forces and achieve the administration’s lofty vaccination rollout targets.
A big ask, but with the “best of the best” in the healthcare community eager to work with this new administration, after a slow start to the US vaccination rollout, there is optimism the listing delivery tankers will soon move on a more even keel.
However, Chinese New Year is less than a month away. With COVID infection numbers already on the rise again in parts of Asia, there are concerns about what the holiday season may mean for efforts to contain the virus’s spread.
The calls for a commodity supercycle have been many after the November vaccine turnaround, and open interest in and has increased significantly. And the strong rally for oil into year-end 2020 and in the first week of 2021 has left the price-sensitive to profit-taking. I expect oil to stabilize near the current level, as progress on the coronavirus vaccine rollout. We should gradually move closer to a typical demand environment; oil prices will then soar.
On the political policy front, it is a humungous day oil market as we could see a full-scale changing of the energy market guards a Joe Biden is sworn in as President. The markets will increasingly scrutinize early signs from the new administration as they relate to oil including around regulation as the early indications that the administration will block Keystone XL and is likely a signal of more challenging conditions to come) And the environmental (re-joining Paris) and foreign policy agenda, especially towards China trade, providing a most uncertain mix to the expected stimulus boost and new initiatives around Covid.
It has been a tricky start to the year for G10 FX as the favoured trades have not performed and honestly—nothing has moved.
But with Janet Yellen putting a convincing and staunch dovish footprint on markets by supporting maximum policy overdrive, it should encourage more USD shorts on the view that monetary and fiscal policy are singing from the same hymn sheet and one of a maximum possible stimulus.
It’s striking just how appealing virtually every asset class on the street looks when viewed through the weaker US dollar lens.
The Biden stimulus rally has pushed. emerging market stocks to all-time highs so with risk sentiment improving, Brent Crude trading comfortably above $55, and the US dollar weakening a touch, it should provide a more inviting backdrop for the ringgit
However, while the incoming Biden administration’s focus will be domestic-orientated, another all-time high for China’s trade surplus in December ($78.17 bn) ostensibly supports US foreign policy hawkishness which is not great for Asia FX risk and worth keeping ears and eyes trained on the early tonality of the new administration’s views on China trade.
Maximum stimulus overdrive, favourable to bullion turnaround in taper talk and slightly weaker dollar paint an encouraging backdrop for gold prices provided real rates oblige.
is hovering close to the 200dma, with the potential for a rally on a break above there as gold has been forming a base around the $1820-1840 area.
Gold has been facing headwinds from a strong US dollar and higher real rates so far this year. The market is trying to hold the yellow metal above crucial support levels, which is encouraging. Still, so far gold has struggled to recover convincingly past the $1850 psychological level, and the 50dma around $1960 remains the ultimate target Q1 for gold bulls.