The new year is off to an incredible start with events on Capitol Hill last night highlighting just how big a job Joe Biden has in bringing the country back together again.
We’ve become quite de-sensitized to what would once be considered outrageous in recent years but what we saw in Washington on Wednesday was truly shocking. But with the election results now ratified after an extended joint session and Trump’s support waning among his allies, things may be looking up ahead of the inauguration in less than two weeks.
What has been impressive over the last couple of months is that, despite the drama around the election, investors have well and truly held their nerve. And that was evident again yesterday, with stock markets starting the day on the back foot but gaining confidence throughout the session and ending comfortably in positive territory.
It’s been a mixed European session so far, with stocks giving up earlier gains, leaving US futures only marginally higher ahead of the open. Clearly, despite all the mayhem, confidence in the institutions remains strong among investors and they have well and truly been tested this time around. The next two weeks won’t be without drama but with allies abandoning ship, Trump’s influence is waning.
It’s also been interesting to see investors taking a relaxed approach to the Georgia results, with caution earlier in the week suggesting they may not react too kindly to the outcome. As ever, the idea of something has proven to be far scarier than the outcome itself and investors rather than hiding in fear of taxes are revelling in the prospect of more stimulus.
Perhaps it should be more of a concern that whatever the outcome, it’s bullish for stock markets. Uncertainty seems to be the only thing that puts them on the back foot in any material way. Higher US yields did very little to throw investors off either. When the Fed has your back, I guess there’s little to fear.
Oil pulls off highs
Oil prices have pulled off their highs but are continuing on a positive trajectory after WTI broke above $50 for the first time since late February. Safe to say OPEC+ surpassed market expectations and are reaping the benefits as crude extends gains. It was looking overextended going into the meeting and talks going into a second day didn’t look a promising signal.
But Saudi Arabia’s cut has had a big impact and could keep crude prices above $50 in the medium term. Of course, we will see some profit taking soon enough and $49-50 will likely be tested but even a temporary move below, should it happen, won’t change the medium term outlook. The group has shown its commited to keeping oil prices higher and followed words with action.
Gold lower on USD recovery
The dollar is enjoying a modest recovery today which is weighing on gold. The yellow metal broke convincingly above $1,900 earlier in the week and quickly gathered momentum. It then ran into resistance around $1,960, the 61.8% retracement of the move from the all time highs to late November lows.
This may just represent a little profit taking though, with the first test now being $1,900 from above. A move below here could just mean a slightly deeper correction as the dollar enjoys a little reprieve. With US 10-year yields above 1% at the prospect of more stimulus, confidence in gold may well depend on yields not continuing the upward trajectory on fear of more inflation and earlier Fed tightening.
Bitcoin just keeps going
Bitcoin is once again making new record highs today and showing little sign of running out of steam. It just seems a question of when it will hit $40,000, rather than if, and you could say the same about $50,000. Rallies like this that are driven by FOMO alone, with loose logic applied later aren’t sustainable but they can certainly produce extraordinary returns in the meantime. When it was closing in on $20,000 for the first time, it did not feel like this was a rally in the late stages of its cycle but that was a whole three weeks ago. Priced have now doubled and that’s quite ridiculous. It still doesn’t feel like the rug is about to be pulled out but I’m no longer quite so confident. I think $50,000 could be a major test and let’s face it, another 25% rally in bitcoin is nothing. When it falls, it’s going to hurt, we may have to wait a little longer yet.