Global equities remain on hold amid $1.9T Biden’s stimulus and Trump’s impeachment

Posted on January 15, 2021January 15, 2021 by Vrasidas Neofytou

Global stock markets were on hold on Friday morning, digesting the details of the proposed $1.9T US stimulus plan by President-elect Joe Biden and ahead of President Trump’s potential impeachment trial.

Joe Biden’s $1.9 trillion pandemic-relief package:

President-elect Joe Biden announced the details of a $1.9 trillion pandemic-relief package on Thursday night. The proposal, called the “American Rescue Plan” would be the first of two major spending initiatives Biden will seek in the first few months of his presidency in 2021.

The second bill, expected in February, will deal with Biden’s longer-term goals of creating jobs, reforming infrastructure, combating climate change, and advancing racial equity.

The “American Rescue Plan” was designed to aid additional support into pandemic-damaged local businesses and US families until the Covid-19 vaccine is widely available. Some of the major proposals of the bill include direct payment of $1,400 to most Americans, bringing the total relief to $2,000, including December’s $600 payments together with an increase of the per-week unemployment benefit to $400 until September and others.

Political leaders in Washington from both Democratic and Republican parties offered initial support for Biden’s stimulus packages, showing a collaborative stance after the deadly riots in Capitol Hill last week and ahead of President Trump’s potential impeachment trial.

Trump’s Impeachment:

President Donald Trump became the first US president ever to be impeached twice, after the U.S. House of Representatives passed a single article of impeachment on Wednesday, accusing him of high crimes and misdemeanours for inciting an insurrection in the U.S. Capitol last week while Congress counted Biden’s electoral win.

The second impeachment trial for President Donald Trump will likely pull into President-elect Joe Biden’s term, which starts on January 20, 2021. A possible Senate vote to convict Trump would prevent him from becoming president again in 2025.

Market reaction:

All three major US stock indices ended Thursday’s session slightly lower but near their recent all-time highs, as investors are concerned over the cost of the relief package and the possible taxes on tech names, despite the prospects for an economic recovery.

The benchmark 10-year Treasury yield rose to near 1.12% while the DXY-dollar index against major peers climbed at 90.50 on Thursday, gaining support from the higher inflation expectations and massive U.S. fiscal stimulus.

However, their recent bounce in Yields and greenback lost some steam after Federal Reserve chairman Jerome Powell said the U.S. central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term.

US dollar recovers from 2018 lows on rising Treasury yields and stimulus hopes

Posted on January 13, 2021 by Vrasidas Neofytou

The US dollar has been the top performing currency since last week, gaining support from a spike in US Treasury yields, the Biden’s stimulus agenda, hopes for US economic growth and expectations for higher inflation.

The greenback continues to recover from 3-year lows after the Democratic party won control of the US Senate last week, which propelled expectations for bigger fiscal stimulus packages to shore up the US economy.

President-elect Joe Biden has promised further pandemic-relief fiscal spending following the disappointing non-farm payrolls for December, financed with more Treasury debt and taxes.

The 10-year Treasury bill crossed the 1.10% yield level for the first time since March, sparking speculation that a long period of interest rate compression could be reversing.

The dollar valuation has improved against major currencies since the US real yields are rising faster than global counterparts together with the shift by the Federal Reserve to allow higher inflation.

The surge in bond yields and market inflation expectations have been enough to pause the bearish bets against the greenback. The dollar index rose near the 91 level, after dropping as low as 89 last week, which was 12% lower from March highs.

Crude oil climbs to pre-pandemic levels on tightening supply and demand recovery hopes

Posted on January 13, 2021January 13, 2021 by Vrasidas Neofytou

Crude oil prices rise to pre-pandemic 11-month highs, gaining support from Saudi Arabia’s 1 million bpd supply cuts, together with the fall of the US dollar, the oil demand recovery bets, and the lower crude inventories.

The US-based WTI crude contract extended a recent rally towards $54 per barrel level on Wednesday morning, while the international Brent crude contract rose as high as $57.50 per barrel, prices not seen since February 2020 and before the start of the pandemic.

The rally in the crude oil contracts continued into the energy stocks and ETFs, offsetting the surging Covid-19 cases around the world. Energy names such as Exxon Mobil, Valero, Conoco, Phillips 66, and the leading energy ETF “USO” have gained more than 50% since the recent lows in October, with some of them recovering almost all the pandemic-led losses.

Saudi Arabia’s supply Cuts:

Energy investors increase their bullish bets on crude oil contracts, amid expectations that the supply cuts by OPEC members will continue into 2021.

Saudi Arabia which is the de-facto leader of the OPEC group, has surprised the energy market by unilaterally deciding to cut its crude output by an extra 1 million barrels per day for February and March. The Arab country decided to tighten its crude supplies until the end of Q1 2021, to prevent a glut in the global oil storages caused by the lower demand for petroleum products amid the resumed global lockdowns to curb the spread of the second Covid-19 wave.

Mass vaccinations increase the hopes for oil demand recovery:

Herd immunity would be an important price catalyst for the oil market. Investors have already started positioning their funds into energy stocks and ETFs, anticipating that a successful roll out of a vaccine around the world, would reduce the pandemic-led global demand losses for jet and gasoline fuels in 2021-2022.

Energy prices have also gained support from the prospects of a massive US fiscal stimulus that would recover the industrial activity and hence the demand for petroleum products.

The recent fall of the US dollar to 3-year lows makes the dollar-denominated crude oil products cheaper for buyers with foreign currencies.

Finally, oil prices received an extra boost on Tuesday night, after the API crude oil inventory report for the US dropped by 5.8 million barrels last week to around 484.5 million barrels, surpassing analyst’s expectations for a fall of 2.3 million barrels.

Global equities hit record highs despite Capitol Hill unrest

Posted on January 8, 2021January 8, 2021 by Vrasidas Neofytou

Global equities hit another fresh record high on Friday over a growing optimism for a stronger economic recovery around the world despite the political unrest in the United States.

All major US stock indices such as Dow Jones, S&P 500, Nasdaq 100, and Russel 2000 rose to all-time highs on Thursday, while European and Asian equities hit fresh multi-year highs on Friday morning, after the US Congress confirmed the election of Joe Biden as president, removing some political risk from the financial markets.

The inauguration of Joe Biden as the 46th president of the United States will mark the beginning of the four-year term of Joe Biden as president and Kamala Harris as vice president. A public ceremony is scheduled for Wednesday, January 20, 2021, at Capitol Building in Washington, D.C.

Investors are optimistic about the so-called “blue wave”, expecting that the new political landscape under Joe Biden’s administration together with the Democratic-controlled Congress would pass larger fiscal stimulus to support the pandemic-damaged US economy.

Equities got an extra boost after the Institute for Supply Management said its index for nonmanufacturing activity in the U.S. rose to 57.2 in December from 55.9 in November.

Capitol Hill chaos:

Investors were shocked on Wednesday after a group of President Trump’s supporters stormed into the Capitol building, causing Congress to suspend proceedings to confirm the election of Democratic Joe Biden as the next president of the United States.

Protesters invaded the halls of Congress and Senate Chamber, shouting “Trump won that election!”, while the members of Congress and Senate staffers were ordered to take shelter in the building. Unfortunately, 5 people died during the riot, including a policeman, a woman who was shot by police inside the Capitol building, and 3 other people who died from medical emergencies.

Market Reaction:

The Dow Jones Industrial Average added 211 points, or 0.7%, to 31,041.13, surpassing the 31.000 level for the first time, while the S&P 500 climbed 1.5% to 3,803.79. However, it was Nasdaq Composite that outperformed the market, advancing 2.6% to 13.067, and posting its first-ever close above the 13.000 level.

Asian Equities:

Asian stock markets hit fresh multi-year highs following the overnight rally in Wall Street. Japan’s Nikkei 225 index ended Friday morning at 28.138 points, up 1.75%, posting its higher closing since 1990.

Meanwhile, South Korea’s Kospi index jumped 4%, boosted after a local media reported on a possible deal between tech giant Apple and South Korean automaker Hyundai Motor on developing electric vehicles and batteries. Hyundai Motor reported that it has early talks with Apple but without any decision yet, while its share price skyrocketed by 23%, pushing S. Korea’s auto sector to finish the day with more than 10% gains.

Precious metals shined in 2020

Posted on January 6, 2021January 7, 2021 by Vrasidas Neofytou

Precious Metals began 2021 with strong gains as a global surge of Covid cases and the prospects of tougher social restrictions drive investors into safe-haven metals.

The four precious metals that trade on the future exchanges have posted their best annual performance since 2010. Gold and Palladium finished 2020 with 25% in gains, Platinum added 10% while Silver had a stellar year with 50% in gains.

Gold and Palladium hit record highs last year, gaining support from the pandemic outbreak, the expansionary monetary and fiscal policies, and the weaker US dollar.

Institutional investors jumped into bullion to hedge their portfolios against inflation risk and currency devaluation caused by the massive stimulus measures and the lower US real yields.

The US dollar index plunged near 3-year lows, making dollar-denominated precious metals more attractive for investors with foreign currencies.

Finally, Silver, Platinum, and Palladium gained traction by their dual role as safe-haven metals and industrial metals amid the strong economic rebound in China and their extended usage in renewable technologies.