It’s risk-parity unwind to risk parity rewind inspired by improving US vaccine distributions amid more evidence that US President Joe Biden will push for a larger fiscal stimulus rather than seek bipartisan compromise.
Indeed the street has swivelled its focus from “GameStop” to ” Game-on” as investors shifted gears from a “Turnaround Tuesday” to a full-on buying bonanza.
The risk-on sentiment comes on the back of the re-opening path that looks gleaming with new Covid-19 cases in the US slowing; vaccine roll-outs accelerating and with investors now repricing in the upside risks to the markets US fiscal stimulus assumptions – all the ingredients for a rapid recovery from Q2 onwards are getting sweetly baked into the re-opening party cake.
Amazon and Google report fourth-quarter earnings in after-hours markets, and while the profits are good, news that Amazon’s Jeff Bezos is stepping down as CEO to be the company’s executive chairman is raising a few eyebrows and caused a bit of knee jerk in the e-minis.
Vaccine roll-out picks up momentum
The US vaccine roll-out has picked up linear momentum in recent weeks. The outlook has buffed up for several reasons. Unlike in Europe, manufacturers have delivered more or less on schedule.
Both Pfizer and Moderna have reiterated they are on track to meet their contractual obligations in the coming months. Simultaneously, Johnson & Johnson has presented good trial results, and appears to be catching up on pre-manufacturing delays.
Further downstream, the supply chain’s final mile has become more efficient, with a rising share of available doses getting administered.
Wallstreetbets is hitting the point of diminishing value, and market interest as silver and GME roll over aggressively. With “greater fool theory” trades, you eventually run out of new money to keep things going and it usually all ends up in tears for some believers.
As the “bricks and mortar” video game retailer trading frenzy fades to the background, a few weeks from now, it will probably be something else. Retail traders will still be a force to be reckoned with, but we are perhaps past the peak YOLO world with the cat out of the bag.
Oil surges higher
Oil continues to strengthen today with Brent just shy of US$58 a barrel before profit-taking set in.
Considerable activity in the physical market is behind the move and is pushing the backwardation further. Shell purchased five cargoes of North Sea oil yesterday in the Platts (10-minute) window and placed bids for seven more which remained unfilled. To put that in perspective, typically one or two cargoes trade in the 10-minute window. And according to Bloomberg, yesterday’s gigantic purchases were the most by a single company in at least a decade.
Demand in the physical market has been the driver of a strong front of the curve for this week fueled by news of OPEC+ production compliance at 99%. US vaccine rollout picking up steam in recent weeks are all getting framed as the Biden administration pushes for a colossal stimulus deal.
Optimism is also getting nudged forward as the northern hemisphere puts January behind. More frigid temperature and huge snowstorm blanketing the US East Coast should not be underestimated from a heating oil perspective.
But snowstorms could be a double-edged sword not only from a travel impairment perspective, but it dramatically slows down the vaccine distribution to some of the most populated cities in the US where jabs are most needed.
Equity and Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi