- Tech sector outperforms, up-ending cyclical rotation
- Asian indices hit record
- Oil nears February highs
- Brazil and Canada announce interest rate decisions today.
- Intel (NASDAQ:INTC) reports Q4 results on Thursday.
- On Thursday, the Bank of Japan and the ECB deliver interest rate decisions.
- US Initial Jobless Claims are also released on Thursday.
- Futures on the S&P 500 Index climbed 0.2%.
- The STOXX 600 Index increased 0.3%.
- The MSCI Asia Pacific Index gained 0.6%.
- The MSCI Emerging Market Index advanced 1%.
- The Dollar Index retreated 0.1% to 90.43.
- The euro increased 0.1% to $1.2146.
- The British pound jumped 0.3% to $1.367.
- The onshore yuan strengthened 0.2% to 6.467 per dollar.
- The Japanese yen strengthened 0.1% to 103.77 per dollar.
- The yield on 10-year Treasuries gained less than one basis point to 1.09%.
- The yield on two-year Treasuries gained less than one basis point to 0.13%.
- Germany’s 10-year yield climbed less than one basis point to -0.53%.
- Britain’s 10-year yield fell less than one basis point to 0.285%.
- Japan’s 10-year yield fell one basis point to 0.049%.
- West Texas Intermediate crude climbed 0.8% to $53.39 a barrel.
- Brent crude gained 0.8% to $56.35 a barrel.
- Gold strengthened 0.8% to $1,854.79 an ounce.
Key Events
Futures contracts on the Dow, S&P and NASDAQ, as well as European stocks were trading higher on Wednesday ahead of the US open, boosted by expectations of additional fiscal stimulus following the inauguration of President-elect Joseph Biden later today. However, small cap futures were in the red, upsetting the cyclical rotation.
The dollar was weaker, pressured by stimulus hopes, while oil continues its upward trajectory.
Global Financial Affairs
On Tuesday, Netflix (NASDAQ:NFLX) crushed analysts' expectations when it posted outstanding results, adding 8.5 million users in the fourth quarter. Shares jumped over 5% on the news, helping make the NASDAQ Composite Tuesday's best performing index, when it closed up 1.54%.
Contracts on the NASDAQ continued to outperform on Wednesday, buoyed by US Treasury Secretary nominee, Janet Yellen showing her support for Biden's proposed $1.9 trillion fiscal aid when she testified in the Senate on Tuesday. Yellen—adding the gravitas of her previous post as Federal Reserve chair to Biden's aid plan—argued that the benefits of economic stimulus far outweigh the added burden of debt.
Tech also outperformed in Europe. The sector helped lift the STOXX 600 Index.
Although the market narrative previously argued that any economic stimulus would see the tech sector underperform, the sector's recent performance could be a sign that it is simply breaking the market mould or it may be that investors are locking in profits.
Stocks in Asia hit record highs with the MSCI Asia Pacific ex-Japan index accelerating 0.8% and Australia’s ASX 200 climbing 0.4% to record highs. Japan’s Nikkei 225 gave up an early advance on concerns of the widening coronavirus contagion, to close 0.4% lower.
China’s Shanghai Composite added 0.4%, rebounding after it was the only major Asian index to close in the red on Tuesday. The Chinese New Year holiday is less than a month away and as we are seeing a rebound in case numbers there, it is worth remembering that it was at this time last year that the COVID-19 contagion began to spread across the globe.
US stocks rose on Tuesday. The 0.81% hike in the S&P 500 index was driven by the energy (+2%), communication services (+1.8%) and technology (+1.3%) sectors.
Treasury yields, including on the 10-year note, rebounded from yesterday’s decline, but are still ranging within a falling flag—bullish after a five straight day rise, boosted by the 100 DMA.
The flag’s placement suggests that Treasury bears are gearing up to push yields above the rising channel since the March bottom.
In the argument between the possibility that Biden's agenda would spark reflation—giving USD holders a bigger yield, and the oversupply of dollars reducing demand, the latter seems to be winning the argument.
The dollar gapped down, as it fell for the third day, back below what could have been a bottom, having found resistance by the 100 DMA that defends the top of a rising channel.
The greenback's weakness boosted gold for the same number of days. The yellow metal has been struggling over the last two weeks despite the belief that further stimulus is more likely now that the Democrats control the House, Senate and the Presidency. 
Gold peaked above a still potentially bearish pennant, having found resistance by the same 200 DMA that pressed on the price action within the pennant, with the 50 DMA breathing down its neck to trigger a Death Cross, below the top of a falling channel.
Bitcoin dipped below, but rebounded above, the bottom of a bullish pennant, providing an ideal entry for aggressive bulls.
More moderate traders would wait for the proper upside breakout, with an $18,756 price move expected to follow, to repeat the preceding rally.
Oil gapped up. It's now just 25 cents away from reaching its highest level since February.