Bullish into 2021 with blue sweep confirmed

Intermediate

Macroeconomic/ geopolitical developments

  • The Democrats won both seats in the Georgia Senate runoff elections from Wednesday, confirming a “blue sweep”, the Democrats now taking control of both houses of Congress alongside the presidency.
Georgia Democrats
  • Then, Thursday saw unprecedented and shocking events in Washington DC, with Trump supporters storming the Capitol building.
DC Riots
  • The fact that President Trump appeared to incite this activity has seen his social media accounts with Twitter, Facebook and Instagram shutdown.
  • Various US politicians are looking for the President to be removed even before the inauguration of President-elect, Joe Biden on 20th January.
  • There is risk of another impeachment or for the President to be removed via the 25th Amendment, though neither seem likely given the short timeframe.
  • Global PMI data were mixed, whilst the Non-Farm Payroll data in the US Employment report missed consensus (-140K, with +71K expected).
  • COVID-19 cases, hospitalisations and deaths in Europe, the US and globally continue to surge.
  • National lockdowns in Europe put in place from late 2020 have yet to have a significant impact on the spread of the coronavirus in this wave.
  • The various vaccine rollouts are continuing globally, with the Moderna vaccine having now been added to the list.

Global financial market developments

  • The ‘blue sweep” saw US and global stocks push higher, though with growth stocks underperforming value and cyclical shares.
  • This underperformance was due to the anticipation of legislation to curb the strength of the large, new media, tech companies.
  • The major US equity indices did hit record highs, with the DAX also at an all-time high, whilst the FTSE 100 posted an impressive 6% rally for the first week of 2021.
  • The expectation of reflationary fiscal spending from the Democrats fuelled the view of a reflation trade, and alongside stock market gains saw a surge in US (and to a lesser extent global) yields, with the US 10-year Note pushing above 1.0%.          
  • The US Dollar did stage a modest rebound from its weakened position, most notably within G3 (versus the Euro and Japanese Yen), driven by wider yield differentials.
USDJPY
  • Risk currencies” did push higher early last week with the Australian, New Zealand and Canadian Dollars all strong, before setting back.
  • GBPUSD now looks vulnerable to a downside correction.
  • In the commodity space, Oil and Copper were significantly higher to start the year, benefiting from the reflation view.
  • Gold plunged lower with the higher US and global yields and the stronger US Dollar.

Key this week

  • Geopolitics:
    • Political events and potentially more conflict will be closely monitored in the US into the inauguration of President-elect, Joe Biden on 20th January.
    • Markets will monitor further vaccine delivery announcements and approvals.
    • COVID-19 cases, hospitalisations and deaths stay in focus in Europe and the US.
    • Watching for new lockdown measures.
  • Central Bank Watch: No central banks in action.Fed’s Powell speaks on Thursday.
  • Macroeconomic data: A very quiet data week with the standouts being the US CPI and Retail Sales on Wednesday and Friday respectively, with UK GDP also Friday.
DateKey Macroeconomic Events
11/01/21Australian Retail Sales; China CPI
12/01/21Nothing of note
13/01/21US CPI; Fed’s Beige Book
14/01/21China trade data; German GDP; US weekly Jobless Claims; Fed’s Powell speaks
15/01/21UK GDP, Industrial & Manufacturing Production; US Retail Sales

Editor in chief

Steve Miley is the Market Chartist and has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued

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