Market Commentary – January 7, 2021

Kevin Jock

7th January 2021

    Pro-Trump supporters storm Capitol Hill in an attempt to block Congress from certifying Biden’s presidency following a decisive win for Democrats in Georgia’s run-off election. Both Jon Ossoff and Raphael Warnock’s victory ensures the Senate floor is now split 50-50 leaving Vice President-elect Kamala Harris as the tiebreaker. The S&P500 and Dow Jones relished the news both gaining 0.9% and 1.6% respectively on the prospect a top-up stimulus package is on horizon for American households. Meanwhile the Nasdaq underperform as investors fret over uncertainty if Democrats would impose harsher non-business friendly tech policies.

    Despite lockdown, economically sensitive stocks boosted European benchmarks higher after Moderna’s vaccine won regulatory approval from the European Medicine Authority and the European Commission. Investors were also optimistic over better trade ties with the U.S. as the Democrats are on the cusp of gaining majority power.

    Asia-pacific indices advanced higher, set to continue overnight U.S. momentum with the S&P200 and Nikkei climbing defying peripheral risk. The Japanese PM Suga is set to declare a state of emergency today for the Tokyo region, expected to decrease 0.7% of GDP for each month it’s implemented. Whilst the declaration does not impose lockdowns, authorities can close or limit business operations as well as urge residents to stay home. The Hang Seng continues to rise despite increasing hostility from U.S. officials in expanding the Wall Street backlist. The most recent rumours surround payment apps Alibaba and Tencent as the NYSE announced they will delist the ADR of China Mobile, China Telecom and China Unicorn prior to open on Monday 11th Jan.

    Sentiment remains bearish on the U.S. dollar as it fluctuates at lows. Majors across are the board are hitting levels unseen for years. The Aussie nears 0.78, the Euro closes above 1.23 and the Yen at 103. Exotics paint a similar picture with the TRY and MXN breaking multi-month highs. Elsewhere, crude hits $51 today, gold tumbles whilst bitcoin achieves’ a literal vertical trajectory upwards approaching $38,000.

Dow Jones

Figure 1 (Source: IS Prime): Dow Jones Daily : As Democrats transition to power, cyclical stocks regain investor favourability boosting the Dow to record highs.

Headliner to Review

  • Due to the pandemic and tightening restrictions, US ADP non-farm employment change unexpectedly dropped by 123,000 (the previous value was revised down and only continued to increase by 304,000). It was the first drop in eight months when the market expected to add 88,000.
  • US Final Services PMI dropped from 55.3 to 54.8, which was slightly worse than the estimate of 55.2.
  • S. crude oil inventories fell for four consecutive weeks for the week ending January 1, 2021, and the unexpected weekly decline further expanded to 8.01 million barrels (previously fell by 6.065 million barrels), and the total fell to approximately 485.46 million barrels.
  • The German Consumer Price Index (CPI) in December 2020 maintained a decline of 0.3% year-on-year, falling for the fourth consecutive month, and exceeded market expectations by 0.2%.
  • The Purchasing Managers Index (PMI) in the Euro zone after the seasonal adjustment in December 2020 was unexpectedly revised down from the previous value of 47.3 to 46.4, contracting for four consecutive months. The market originally expected to confirm the initial value of 47.3.

Headliner to Watch

  • Headline inflation figures in CPI to stay in deflationary territory at -0.2%. Economic drag still weighs down macroeconomic figures evident with retail sales expected to contract -3.4% from 1.5%.
  • US jobless claims set to worsen to 798K from 787K however is expected to improve in coming months as Democrats gain power.
  • Canadian services PMI expected to improve to 53.1 whilst across the border U.S. to decline to 54.5 from 55.9.

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Antony Tan
Ben Li
Kevin Jock