The first week of 2021 has been anything but boring. The 2 undecided U.S Senate seats went to Democrats in Georgia Run-offs and the sitting U.S. Senate certified Joe Biden’s win. This was followed by historical pro-Trump protests in the U.S. which culminated with protesters breaching the U.S. Capitol security on Wednesday. President Trump was subsequently blocked from Twitter and Facebook and eventually had to concede – almost a month after the initial election results were published.
Joe Biden is now confirmed to be the 46th President of the U.S. and Kamala Harris to be his Vice-President. The duo can expect to have a rather smooth sailing for the first two years, until the mid-terms, as Democrats are in control of both the Senate as well as the House. Joe Biden suggested that further stimulus will be pushed into the economy and the current US$ 900 billion is just a ‘down payment’. The aggregate stimulus may reach US$ 2 trillion which could be spent on infrastructure, green energy but also on COVID-19 related stimulus to individuals and businesses. The fiscal stimulus combined with monetary stimulus from the Federal Reserve Bank might give the U.S. economy an inflationary push from the demand side which could put even further downwards pressure on the Greenback. US dollar, measured by DXY, is currently trading near 90.0 which is the lowest since April 2018. The Fed has committed to continue the current stimulus of US$ 120 billion every month, in the form of purchasing treasury securities, as well as mortgage-backed securities. On the flipside, should the U.S. economy bounce back fast, the dollar might get a boost and recover to 91.2 – 92.3 levels. Rosenberg Research estimates that the U.S. might see 3.3% of economic growth in 2021 with the currently approved stimulus. Assuming that additional funds are poured into the economy, the growth rate might reach even 7% which is another historical high.
Amid the record high coronavirus hospitalizations, deaths and daily new cases, jobs recovery has come a halt in the U.S. Non-farm payroll data was negative for the first time since April – we saw 140,000 jobs cut in December, versus the consensus of 71,000 jobs added. This trend was also confirmed in ADP jobs data on Wednesday – 123,000 jobs were lost, versus the consensus of 75,000 jobs to be added. Leisure and hospitality had the largest cuts of negative 498,000 according to NFP data, while retail added 121,000 new jobs. WSJ reports that 2020 was the worst year in terms of job loss with 9.4 million American jobs cut, exceeding the previous record in 2009 when 5 million jobs were cut. Unemployment rate of 6.7% is unchanged from November. In terms of the number of unemployed people, we are back at 2015 levels, meaning that COVID-19 crisis erased 5 and a half years of job gains in the U.S. economy, according to Rosenberg Research. Assuming that December pace of recovery continues, it would take at least 4 years to reach the level of employment we saw in February 2020.
The markets have been in a risk-on mode with S&P500 and Nasdaq100 respectively gaining 1.83% and 1.68%. Russell2000 also posted strong gains of 5.9%. Gold was down 2.6%, while US dollar, measured as DXY, gained 19 bps. Oil broke some key resistance levels, gaining 9.2% and traded near US$ 52.0 – levels last seen in February 2020. A couple of other noteworthy moves were Bitcoin reaching all-time-high of 41,000, and UST 10-year yield broke to 1.11% – last seen in March 2020. Re-inflationary trade seems have taken off.
Have a great trading week ahead!