It looks like the reflation trade is back on with most risk assets rising, including crude oil, copper, silver and US index futures. At the time of writing, the Dow futures pointed to a gain of 200 points and the S&P 500 was 29 points higher. European stock indices were slightly lower on the session, despite the firmer US futures and the fact the top shares index in Hong Kong rose to its best level since 2019 overnight. In FX, the US dollar was down against all her major rivals except the Japanese yen, which was even weaker. Yen crosses such as the
EUR/JPY which we thought would rally yesterday was indeed sharply higher.
The positive sentiment is partly a reflection of hopes for more government spending. Leaked text of Treasury Secretary nominee Janet Yellen’s confirmation hearing revealed the ex-Fed Chairwoman called for expansive government action to bolster the world’s largest economy. “Without further action, we risk a longer, more painful recession now – and long-term scarring of the economy later," Yellen is expected to say.
In recent months, investors have been pling into value stocks and other risk assets, betting that, with the roll out of COVID vaccines and coupled with ongoing central bank and government support, the global economy will expand this year. President-elect Joe Biden, who will start his premiership in Washington on Wednesday, has already unveiled a $1.9 trillion stimulus package plan which (will undoubtedly be opposed by some Republicans in the senate) should help to fuel the recovery if passed. With Yellen being the ex-Fed Chairwoman, there will be greater co-operation between the central bank and the Treasury in the next few years. This should mean both monetary and fiscal policies will be closely aligned to support the US economy, providing a good backdrop for equities and other risk assets.
Adding to the positive sentiment, Goldman Sachs posted solid results and its shares rose 2.5% in pre-market. In Europe, the euro rebounded after data from Germany’s ZEW Institute showed investors grew more confident about the economic recovery prospects.
Coming up
There will be a lot more happening as the week progresses, as we outlined in our Week Ahead preview
HERE. Among other things, we will have more earnings including from Netflix tonight; Biden’s Presidential Inauguration on Wednesday; policy decisions from central banks in Brazil and Canada both on Wednesday, as well as the Bank of Japan and the European Central Bank on Thursday. Friday will see the release of Eurozone PMIs and retail sales data from the UK and Canada.
Source: ThinkMarkets and TradingView.com