We are moving from the chaos on Capitol Hill to cash handouts ringing the New Year till.
It’s fiscal infusions, not markets grandiose delusions to glide the economy back to the pre-virus path.
The first order of business for the Biden administration and Democratic Congress is likely to be another tranche of Covid-19 related fiscal support. The street expects a massive infusion either side of $1 trillion in Q1 hat is built around further stimulus checks, funds for state and local governments, and enhancements to unemployment benefits, among other provisions.
The big picture in US equities seems to be that ‘blue wave’ election themes are here to stay and will be tough to fight with Cyclicals and Tech rallying side by side.
Short selling activity has completely backed off and with most of the tail risk now in the rear-view mirror, the VIX is coming down. Naturally, fresh money will flow back to the market as volatility suppresses.
Investors remain super bullish about the prospects for US equities in 2021. Effective vaccines mean consensus is aligned to a surge in economic activity and strong profit recovery.
Will post-pandemic economies see a roaring 2020s recovery including an inflation surge, or will secular stagnation continue to dominate?
Vaccination rollouts and herd immunity are hard to predict but look plausible on the near-term horizon. But the great unpredictability in human behaviour once the virus threat fades, remains a question mark.
But to me, the most tenable scenario is one where pent-up consumer demand explodes at the end of Q2 as vaccine allows more activity and movements from point A to B and you will have to add T to the equation as travel will pick up big time. Thereby temporarily overwhelming the supply of all goodies and driving up short-term inflation.
Oil scores some gains
To a large degree, oil markets continued to mimic broader markets trading off the same the US stimulus impulse while treating the latest COVID-19 scare as nothing other than a speedbump thanks to the stimulus and vaccine look through narrative.
Prices were underpinned by the OPEC+ meeting earlier this week as Saudi Arabia pledged to keep a lid on supply and positive mood music amid expectations of greater stimulus following the blue sweep in the Georgia Senate run-offs.
The annual rebalancing of the major commodity indexes starts tomorrow which will unquestionably keep a bid under oil futures which are still in catch up mode to its hard commodity and industrial metal peers.
Oil price stability is quite astonishing when considering the oil demand Q1 economic write-downs. The new and more contagious variant of the virus places a bigger burden on hospital resources. As the virus spread, hospitalizations are likely to remain high, especially among lower-risk groups who will not be vaccinated at the campaign’s tail end.
As a result, state mobility restrictions will remain tight in Q1. Still, it’s consumer behaviours where the impact is felt the most as many households are likely to continue to avoid consumer services requiring any direct contact or interaction.
But we must bear in mind that viruses will mutate, and the UK variants have been around for months not weeks. The biggest problem might be the current lockdown measures are far too much in the infancy stages to ease the healthcare infrastructure concerns in the immediate future.
However, if we do not have definitive news that vaccines will not work against variants, traders will buy the Oil market dips knowing the vaccinations are our only way out of COVID abyss in 2021
International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi