The S&P 500 climbed to a record high on Friday, spurred by renewed optimism for President Joe Biden’s $1.9 trillion Covid-19 relief plan following a weak jobs report.
The US January employment report is nearly perfect from a market point of view as it will justify full-throttle stimulus from both monetary and fiscal concerns.
For President Biden in particular, payrolls make quite a big difference providing the justification he needs to go full steam ahead towards USD1.9 trillion.
Unquestionably after Friday’s jobs headline clunker, there will be a growing belief that he could get relatively close to that number through reconciliation. And if last week’s budget resolution gets passed, it will most certainly post upside risk to most assumptions.
And while the NFP headlines came up lemons, the S&P closed higher as the details under the job hood are not that bad. After adjusting for the longer workweek embedded in the data, investors could take a more sanguine view because it is evidence that overall labour demand is rising.
In the absence of heavy dose of macro data this week head and shoulders above anything else, especially with the Biden stimulus effect fuelling markets, inoculation rollouts and the curve flattening will drive risk this week.
And optimistically on that front, the latest curve data suggests the flu might finally be retreating. While at this stage it’s mostly a result lockdown abatement, the vaccine immunity effect should kick into gear over the next few months.
As the CV19 curve flattens further encouraging more reopening’s, the gale-force stimulus tailwinds should rocket risk into the stratosphere.
Of course, a high-end stimulus downpour would see the US return a smidgen more quickly to full employment, but at what costs? Too much of a good thing soon becomes unpleasant given the potential costs of unwanted upside inflation, a massive increase in national debt, additional political polarization.
Oil surges higher
Oil ended the week higher (WTI: +9% w/w, Brent: +6% w/w) with price support from supply curbs by OPEC+ and improved demand optimism due to the vaccine rollout.
Oil is trading higher at Asia open getting a kick start from US stimulus effect and a slightly weaker dollar. As well, preliminary OPEC production data for January also suggests compliance with OPEC+ quotas improved in January.
With the virus showing signs of burning out, albeit, from lockdown abatement, still with vaccines rolling out faster than energy markets predicted, oil traders feel comfortable adding length at current prices., even more so with China demand holding up despite higher physical market prices. As speculative forces and real physical demand coalesce, it usually ends up with surging and bubbling crude prices.
A feature of the oil market is that it is cyclical and it does tend to gather momentum and it rarely finds a comfortable equilibrium.
So, while the market is tightening it is doing so with a colossal spare capacity figure sitting in the background getting dismissed as traders become more convinced that consumption will soon pick up considerably in the US due to faster than expected vaccination protocols.
Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi