The positive shift in investor optimism ahead of Joe Biden’s inauguration day is a clear signal the market is leaning towards an early stamp of approval on his administration’s policy agenda.
And rightly so, Biden has put together one of the strongest teams in recent memory, and economic and foreign policy experts could not be keener to work with this administration.
And this alone should be a reason for global optimism and US exceptionalism where both can exist in a happy medium as we advance
After all, it’s hard not to like the sound of the Biden administration’s overarching focus on public health and economic responses to the Covid-19 pandemic. A crucial part will involve distributing vaccines to hundreds of millions during the administration’s first year.
It’s the rollout vaccination, not the timing of taxation that should continue to resonate with investors.
With China’s activity back to a pre-COVID growth path, Asia markets are opening upbeat this morning supported by the usual US policy backstops.
But with both the US dollar and yields continuing to give ground as safe-haven demand ebbs as the light at the end of the Covid tunnels begins starts to flicker again, there is less need for safe havens allowing risk to float more freely on those resounding US policy balloons.
Oil holds support
Many Covid jitters out here, but oil continues to hold and looks to nudge higher eyeing support from the weaker US dollar as oil sensitive currencies are showing the way.
Gold recovers a little
Gold prices recovered from lows yesterday before trade volumes dropped off, with markets closed in the US, and we ended up with a hammer candlestick.
Spot had fallen significantly earlier but found good support near $1800. If gold can break $1840 convincingly, keep an eye on $1860.
The further upside from there might be a struggle if the US dollar continues to climb. Although some market participants may have turned bearish in the short-term, there could be an unexpected rally.
Price action will be choppy this week. Keep an eye on how key drivers develop, namely Treasury Secretary nominee Janet Yellen’s testimony, and US president-elect Biden’s inauguration.
It’s also worth keeping an eye on US real yields and inflation expectations. Concerns about the economy persist despite ongoing vaccinations, and the recent slide for cryptocurrencies including Bitcoin may encourage a return to gold.
If speculators continue to sell the yellow metal, Chinese investors and jewellers will likely take the opportunity to bargain-hunt ahead of the February Chinese New Year holiday.
Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi