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Asia investors are poised for a sluggish start after a weaker close on Wall Street Friday. The big miss on US retail spending in December set a dour timbre on Friday. The much softer than expected data tone adds gravity to President-elect Bidens $1.9 trillion stimulus package pushed forward last Thursday.

Even so, the package is significantly larger than markets factored into their forecasts. still, the final package will ultimately be pared down significantly which is adding a touch of uncertainty to the view.

But there are many culprits for Friday’s risk-off move that might form the basis of discussions this week and possibly lead to an extended” risk-off” skew.

The market might continue to grapple with higher US yields, discussions around the US Fed’s taper and the Democrats’ tax and Tech sector regulation agenda. At a minimum, they could linger in the background tempering risk appetite.

Biden’s inauguration

We open the week to a noisy route-step beat of US national guards ring-fencing Capitol Hill. It’s hardly a festive backdrop to set the stage for a risk rebound into earnings season, especially with the latest unsavoury macro developments hanging like a dark cloud over markets.

Still, US stocks remain close to all-time high levels. The fiscal and monetary policy mix remains exceptionally supportive and dips at this stage are getting consumed. The Fed will continue to be highly accommodating even if they taper in QE in 2021 as they are unlikely to hike Fed Funds until 2022 or beyond.

The big questions remain as to what factors will take us higher over the short term in the face the viral variants forcing politicians to lock down parts of the economy

Johnson & Johnson announced encouraging results for its vaccine candidate, and while risk positive, it feels like investors are in deep need of some economic “proof is in the pudding” at this stage of the reopening rally.

Risk appetite can remain at high levels for extended periods as long as the macro environment remains supportive. What has typically been a glorious season for US shoppers flopped after US December retail sales data were even weaker than most bears feared.

In the past, “bad news was good” as it implied potentially larger fiscal stimulus – now the starting details around fiscal are known, that no longer applies. The weaker the data gets the more reason for Congress to deliver on the upper end of the proposed stimulus package.

I was hoping to wish everyone an early Gong Xi Fa Cai. However, it looks like a grim Lunar New Year ahead. And with COVID-19 tearing through parts of Asia like a wrecking ball, it can’t be good news for the relation trade, especially with Asia doing the bulk of the real-time heavy lifting.

Chinas economic recovery continues to fire on all cylinders and today’s GDP print which is expected to show the fastest expansion in two year due to the full shop and restart effect.

With the pandemic largely under control in China, factories and export-oriented companies have been able to resume normal operations earlier than most other countries, allowing China to meet global demand better. The ongoing lockdowns in Europe and the US are likely to continue to spur demand Chinese goods in the coming months.

Oil markets: Mother nature to the rescue?

Oil prices struggled from the mid-week on after swelling production inventories then fused with the return of COVID in China, providing a not-so-rosy near-term demand signal. And adding for downside drift to the flow the slow roll-out of vaccines globally are walking back the timeline for jet fuel demand to take off.

The US dollar is strengthening due to the confluence of continental dilemmas. The global “risk-off” tone is also attracting US dollar safe-haven demand. A stronger US dollar seldom if ever makes for good bedfellows with higher oil prices.

And with the Biden inauguration stealing the limelight this week, traders are also concerned about a foreign policy pivot. One of the wild cards for oil this year is the upside to Iranian production (dependent on the potential lifting of US sanctions under incoming President Biden).

Last week, U.S. energy firms added oil and natural gas rigs for an eighth week in a row as crude prices recover to their highest in nearly a year.

The oil and gas rig count, an early indicator of future output, rose 13 to 373 in the week to Jan. 15, its highest since May, energy services firm Baker Hughes Co. said in its weekly report.

And while the street doesn’t expect the gradual climb in oil prices from here on out to impact the tempo of rig dramatically adds, the supply response for US producer in a more constructive macro environment is still a risk to the views.

With the polar vortex split potentially leading to lengthier cold spells, the winter weather effect could offset some of the lockdown demand declines. And could also provide a buffer if not a boost to oil demand ahead of February and March where the unexpected one mb/d cur in Saudi Production takes effect.

OPEC+ is the linchpin for higher oil prices. The gap between the call on OPEC and OPEC production should be large enough to provide a buffer if there are positive supply surprises elsewhere, particularly when factoring in the Saudi production cut planned for February and March.

Still, it remains crucial for OPEC+ to monitor the demand variables around lockdowns and stay responsive to changing conditions. Underlying demand will not approach normal levels until 2022 at the earliest, and vigilance from OPEC+ will continue to be important in supporting the oil price.

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