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US equities were stronger overnight on renewed hopes for a stimulus package breakthrough.

The prospect of a rising stimulus tide lifts all boats sees investors revel in holiday cheer as a healthy cocktail of progress over an economic relief package in Washington, Brexit deal optimism that could settle by week’s end, and the likely seamless rollout of multiple highly effective vaccines have mixed to paint trading screens Christmassy Green.

This is despite the numerous headwinds both from the viruses spread and the risk of increasingly tighter mobility restrictions. All the while, investors sit between sixes and sevens regarding the make-up of the stimulus package itself.

And while it will be a slower economic recovery without the stimulus deal, today, the markets are wholeheartedly banking on that deal to provide the ultimate footbridge to the vaccine rollouts.

However, the concern is that after the initial bounce, the market then pivots to a day late a dollar short mode, especially with the US employment situation waning and the Covid-19 spread handcuffing the economic recovery due to the current lockdown siege.

Even more so on the realization that additional stimulus deals in 2021 could be even tougher to table if the Republicans win Georgia’s Senate runoff. It could be that all roads eventually lead to Georgia.

US House Speaker Nancy Pelosi on Tuesday invited top congressional leaders to meet at 16.00 New York to discuss coronavirus relief and government funding. This is probably a positive sign for a COVID-19 relief bill, for which Friday seems a pretty hard deadline. Two- and a-bit days to go.

There is also a “big buzz” among Tory MPs that the UK is heading towards a Brexit deal this week. The UK has dropped a stipulation for re-nationalizing fishing vessels, and the two sides are grinding through details to level the playing field.

It will be interesting to see what happens to the British Pound. Remember, ultimately, this would be a skinny trade deal that would do little to help services. It is hard to be jumping for joy on this news.

Again, looking at the US equity indexes only paints half of a whole bullish story. The below-the-surface roller coaster continues. The re-open trade leads the rally, but growth is holding up relatively well despite plenty of red looking at Mega Cap Tech.

Oil markets

Oil markets revel in stimulus-driven risk appetite as the healthy cocktail of a US economic relief package fused with vaccine tonic provides the ultimate sentiment lifter, to the point where the oil market is even a bit giddy.

The API data missed on the wrong side for oil bulls, but with so much stimulus optimism stuffing oil barrels at the moment, any push lower could be viewed as an opportunity to buy with crude stocks trimming again this week.

Oil managed to trade higher after weakness in Asian trade. Bulls seem to be placing all bets on vaccines’ rollout with a sprinkling of Christmas stimulus fairy dust to help matters along.

It was the IEA’s turn overnight to sound a note of caution and realism. The vaccines’ impact on demand will not be felt for several months. Predictions about the time it takes for the oil overhang to start drawing and impacting are being pushed further towards the second half of the year.

Still, China’s November crude oil throughput set a new record of +3.2% year-on-year. And the running assumption here is that if OPEC only increases output by drips and Chinese demand continues filling current and newly built storage tanks, the global surplus dwindles faster than expected as mobility gets supercharged with the vaccine rollouts.

Specs buying has continued across both grades and products, with Brent remaining the largest recipient, albeit at the slowest pace since effective vaccine announcements. The ratio of longs vs. shorts now stands at almost 4.5 to 1, the largest since January. Naturally, such an unbalanced positioning could result in a dramatic selloff should sentiment shift.

Despite the macro uncertainty, the efforts of OPEC+ should continue to drive a reduction in global oil inventory levels that will support the oil price as global demand gradually recovers to normal levels, possibly quicker than expected thanks to the vaccine.

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