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It is astonishing we have made it through the morphing of the political shades with the stock market still trading near the high end of the historical ranges.

Mind you; the political overhang could last a little bit longer as sentiment was getting soured and held back by protest in Washington overnight.

There a growing sense of relief among investors that the final election hurdle has crossed. But the markets are slowly coming to terms that this might be the best-case US senate outcome via a stimulus perspective complemented by a growing understanding that a Biden administration could make a big difference in coordinating and pushing out a national vaccination strategy that will bring herd immunity in the US much quicker than anticipated.

Indeed, the later could be an even more massive driver for positive US risk sentiment in H2 than anyone had counted on, but only time will tell, however.

The second derivative of US vaccinations will drive equities at the index level and provide a key signpost for oil markets. As people get vaccinated, they are likely to return to those activities most impacted by Covid-19 such as dining out, travelling and other personal service-related areas. So, the number of people vaccinated is also a leading indicator of shifts in consumption.

There is still a lot of wood to be chopped over the next few weeks. Even though we are bearing witness to the markets keen knack of ironing itself out quickly, the most important question now is the sequencing of the Biden policy plan.

Hopefully, for investors’ concerns, it’s in order of stimulus, infrastructure, and tax changes.

While Biden could theoretically get the ball rolling and undo many of the Trump tax cuts for corporations and wealthy individuals on Day One, I cannot imagine that tax hikes are the priority number one when the current mandate is to rid the US of the virus and get the economy roaring again.

Given the high unemployment rate, massive economic pain punishing people at the top end of the pay curve makes no senses at this point. While the much more pressing matter of a raging pandemic and glaring absence of a national vaccine strategy will lead the recovery charge, tax policy waits until 2022?

On the other hand, many expect tax hikes sooner rather than later, so this is an evolving story and an important one to watch.

Oil holds on to gains

Oil is still holding up well supported by the anticipated Blue Wave stimulus effects and the surprising announcement by Saudi Arabia of a voluntary one-million-barrel production cut for February and March, even though the not-too-rosy DOE builds in both gasoline and distillates more than negated the draw in oil. Gasoline and jet fuel remain the main drag on the demand recovery.

US crude inventories fell by a whopping 8.0mb w/w. Strong crude exports of 3.6mbd resulted in low net imports overall, well actually shocking enough oil exports from Saudi Arabia plunged to zero for the first time.

When factoring in the gasoline and distillate side of the equation, demand is still tepid, and that should limit top side market ambitions over the near term.

Still, I suspect some Chinese refineries are back on the spot market bid after being startled by Saudi Arabia and its 1m b/d oil production cut for February and March. Most models had oil prices sliding slightly lower in Q1, reflecting the signs of weakening demand as lockdowns return.

Saudi’s pre-emptive strike and the prospect for a tight market in 2Q21 should continue to support oil possibly via the China demand in Q1 although not without a few hic-ups as demand recovery slows as infections are rising again quickly in other Asia, colossal oil importers like Korea and Japan.

Gold drops as Treasury yields rise

Gold gave way to surging US yields, and a surprisingly resilient US dollar as the market starts to factor in not only a reflationary bounce but a quick path to herd immunity via a sounder US vaccination policy under a Biden presidency.

The US 10y yield is up to 1.049%, up 10bp today and 14bp this week/year. To put that into context: yields fell 16bp on the day after the US election in November; but on November 9 there was a similar shift, with a 9bp yield gain.

Yesterday was a big move, but not out of the ordinary. With Treasuries now, what’s more important is the mix between real rates and break evens.

Real yields entirely drove the early moves in Treasuries, but since NY came in, the mix has shifted and so far, today, inflation now accounts for 10bp and real yields 4bp. That break evens are back leading makes sense given the outlook for more US government spending. And that is consistent with the view we articulated yesterday where its reals not necessarily notional that the balance of market risk lies in the higher yield outlook.

But stealing much of golds glittering appeal is Bitcoin which is looking to extend its glorious run.

Bitcoin still running high

The chase higher is back on based on the notion that bigger main street investors are interested in building longer-term positions. And with deeper pockets in the game and some expecting to quintuple their return in the next few years, it safe to say those big buys will be getting stored in the hard drive collecting dust for the next few years and are unlikely to come back to the markets any time soon.

When you consider BTC a finite asset, these large purchases can significantly impact buyer sentiment. Now, the fear of missing out does really set in from a scarcity perspective.

Within the broader narrative, I think this is all about the new age embracement of blockchain technology to which BTC is so uniquely intertwined.

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