The Capitol Hill invasion, and the ensuing disruption by President Trump’s supporters, is grabbing all the headlines this morning. While the events are themselves shocking, they have not notably impacted financial markets. Far more important was the confirmation that the Democrats had won both Georgia Senate races, giving them effective control of the White House, Senate and House of Representatives. Despite the president’s Sons of Anarchy’s best efforts, Congress has reconvened and will rubber-stamp President-elect Biden’s victory this evening US time.
Technology stocks tumbled as fears that antitrust investigations and new regulations on big tech could follow. I have noted before that 2021 could be big tech’s Standard Oil year, and this is a story worth monitoring as it evolves in 2021. The tech-heavy NASDAQ fell while the S&P 500 and Dow Jones both finished the day strongly. The rotation into cyclicals was driven by expectations that the Democrats would attempt to enact a further fiscal stimulus and a broad spending agenda encompassing infrastructure, environment, health and several other areas.
That also spurred a rise in US bond yields, with the 10-year rising through the 1.0% mark on the way to 1.036%. That was enough to hold up the US dollar overnight, which finished broadly unchanged. However, the rise in US yields promptly torpedoed the recent gold rally, which also suffered from speculative longs culling and Georgia election hedges being unwound. Gold fell 1.60% to USD1919.00 an ounce. More on that later.
Markets will continue to focus on the potential Democratic agenda, which should be broadly positive for cyclical sectors. It is worth touching on the Byrd Rule, which applies to the US Senate. Broadly speaking, the Senate requires 60 votes to pass spending legislation that would increase the budget deficit after a 10-year window. It’s a little more complicated than that, but the general gist is that it is a barrier to spendthrift government largesse. Of course, there are ways around it, some of which the Trump administration used to get his tax cuts through via a simple majority. The Democrats do not have an open chequebook now, although I expect the markets to ignore this fact in the meantime. Nevertheless, the Georgia election results, and possibly the fallout from the President’s actions today mean that Washington DC is witnessing a significant power shift.
The race into cyclicals overnight is playing out in Asia, with stock markets rising strongly across the region. A Congressional affirmation of the Biden win in Asian time may well boost sentiment further, given that the data calendar is an empty cupboard today. Eurozone inflation is released this afternoon but will be a non-event. The words inflation and Europe in the same sentence have not raised a sweat for many a year, nor are they likely to anytime soon.
The US releases Initial Jobless Claims this evening, with new claims expected to creep above 800,000 as Covid-19 wreaks havoc on the service sector. The ISM Non-Manufacturing data is likely to be more closely watched though, with the headline number expected to retreat to 55 in December, from 58 the previous month. Although still expansionary, the retreat reflects the Covid-19 challenges the service sectors face from the patchwork quilt of lockdowns across America. It would likely take a plunge below 50.0 to shake the market’s recovery resolve though, especially with the ISM Manufacturing data yesterday showing an unmistakable recovery trend.
The NYSE reversed its China telco un-delisting of its original delisting and will now actually delist those companies. If you are confused, so am I and it seems like the dying days of the Trump Administration will feature more last shots at China, like the Alipay ban yesterday. Of course, that assumes that he has anyone still left working for him to enact his ordinances. Reports out of Washington DC suggest the rush for the door amongst his coterie resembles the stampede for a Titanic lifeboat.
The events in Washington DC overnight have made bitcoin look a little more sense to me this morning, and I appear to not be alone in that thinking. Strange times indeed. Overall, though, Georgia’s Democrat clean sweep and its ramifications are likely to dominate markets today, with stimulus sentiment well in the ascendant. The buy everything trade is alive and well, if a little noisy.