US equities were stronger on Friday, closing at another record high. Curiously enough, the risk-on tone was underpinned by a downside miss on US payrolls for November – deteriorating labour market conditions could add additional pressure to both Democrats and Republicans to deal with a new stimulus package before year-end. After all, what member of Congress want to be called the ” Grinch that stole Christmas” even though this holiday season is bound to be Xmas -lite.

However, I caution with vaccine development “hope” largely priced. The key driver of US equities will most likely be the pace of vaccinations vs. the COVID-19 resurgence speed, similar to how shifts in mobility drove equities through the spring and summer.

As people get vaccinated, they are likely to “normalise” spending on areas impacted by COVID-19 shortly after that.

Still, investors continue to “knock on Yule logs” that Congress will deliver the ultimate holiday stocking stuffer in the form of a new stimulus bill where stimulus and vaccine optimism could push the tape higher. And with investors showing little appetite for protection trades as cross-asset volatility continues to fall, it seems they are willing to surf these waves of optimism into next year, as vaccine hopes continue to Teflon markets.

It seems all roads lead to stock market prosperity as the post-pandemic market rally has moved seamlessly from policy-driven to mobility-driven to vaccine-driven.

And as the market takes out new highs, investors sitting on the fence may be forced to react, not wanting to miss out on the pot of gold that lies at the other end of the vaccine reopening rainbow, triggering a chase for forwarding earnings as the economy returns to a state of pre-COVID-19 normally.

Unwelcome COVID-19 shocks last but mere minutes, suggesting gone are the days where investors bearishly relished the next virus-induced knockdown to hammer the markets.

I would expect this view to be supported after the market spends some time digesting the latest wide-sweeping new virus lockdown in California. Investors should draw the eventual conclusion that this gnarly news should influence policymakers to get off the fence and sign a stimulus deal pronto.

Oil markets

Some of the shine is coming off the OPEC rally as the reality of Xmas lite sets in with the bulk of Californians, one of the US’s biggest road fuel demand states, are set to enter wide-sweeping new virus lockdowns.

Oil being a prompt contract, it does not have the luxury to look through “Grinchy” holiday season-imposed lockdowns, like other forward-looking assets.

Prices gained after the OPEC meeting. An agreed outcome appeared to be the key, and that is what we got, although I am not sure this was a widely expected scenario.

Interestingly, while the front end of the curve has strengthened, 5-year Brent has weakened to around $47/bbl despite the vaccine providing better visibility on the outlook and news flow suggesting significant cuts to capex announced this week from the two US super-majors.

Monthly meetings on production mean more frequent opportunities for OPEC+ drama to impact the oil price.

Still, with China and India’s demand at ” pedal to the metal” and sentiment supported by vaccines’ progress, oil market sell-off will likely be bought by stronger Asia hands.

Forex markets

Much of the US dollar crash and burn has been focused on the US end of the stick. Tanking cross-asset risk premiums have all but curbed the market’s demand for safe-haven US dollars.

And that lack of demand is now merging with the market’s policy outlook via the dovish duo of Janet Yellen and Jerome Powell.

But this week, Europe takes centre stage as all ears and eyes will be trained on the European Central Bank (ECB).

The selling pressure that drove the dollar lower vs. the Euro last week abates as the greenback is paring loss versus the Euro, due to a combination of Brexit uncertainty and pre-ECB uncertainty as to whether or not Europe’s central bank will push back again Euro strength.

One should expect the EURO to range trade failing a surprise US stimulus announcement or a Brexit bounce.

The odds of a fiscal stimulus package have increased from zero last week, so it would not make too much sense for EURUSD to collapse here completely either, so I would expect dips down to the figure will likely be bought. EURUSD trades at 1.2124 in the Asia morning

But with California reimposing statewide lockdown, I would expect to see some dollar sales from a growth differential perspective keeping visible USD price action negative somewhere in the currency complex even if the EUR and GBP are struggling on Brexit uncertainty.

The decline in the US unemployment rate to 6.7% along with the 4.4% increase in hourly earnings will make it more difficult for the FOMC to take additional accommodative measures at the Dec. 15/16 meeting, such as extending the maturity of its bond purchases.

The overall recovery in the unemployment rate matters more than the miss on the headline number. To some extent, this view will be assuaged by the possibility that a lower headline NFP number makes it slightly more likely that Congress will pass a fiscal stimulus package this year (even if the odds are modest to start with)

International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi