The world seems to be slightly more normal and pleasantly boring now that president Biden and vice-president Harris have taken office. The inauguration ceremony took place with no major escalations as Washington D.C. and other major U.S cities were heavily guarded.
Biden signed a dozen of executive orders hours after his inauguration, reversing a number of Trump’s policies. The heavily criticized ban on Muslim countries was reversed, as well as termination of DACA (Deferred Action for Childhood Arrivals) program. Biden also signed an order to rejoin World Health Organization and Paris climate accords. Addressing climate change has been a key tenant of Biden-Harris platform with significant investment expected to go green energy during the second half of 2021. ACES ETF, that tracks renewables and related industries, gained 136% in 2020, with top holdings Plug Power Inc, Ballard Power Systems, Enphase Energy and Tesla Inc. On top of the renewable sector, industrial and manufacturing companies ought to benefit as providers of materials and machinery. Industrials, measured by XLI ETF, were up 8.6% in 2020 with significant gains added during the month of November (+16%). The top 3 holdings of XLI are Union Pacific Corporation, Honeywell International and United Parcel Service. Biden’s focus is also clearly slowing the spread of COVID-19 which is addressed by requiring social distancing and wearing masks on all federal employees and property. Also, masks are required for interstate travel. Lastly, Biden extended loan forbearance deadlines for mortgages and student loans. This extension should give individuals who struggle with repayments a bit of more breathing room, while supporting consumer confidence. However, looking at the latest retail spending data (December -1.4% and January -0.7% MoM) we can be certain that consumers are more likely to save than go shopping.
The United Kingdom is struggling with the third national lockdown that may last into summer, according to Prime Minister Boris Johnson. The absolute restriction on movement and non-essential commercial activity has translated into a sharp drop in economic activity, as witnessed by November GDP data of -2.6% MoM basis, compared to +0.6% the month before. The data is better than the -5.7% the consensus has expected but looks dire nevertheless. Unemployment has held relatively stable near 4.9% in October. November data will be released on Tuesday and is expected to climb to 5.1%. U.K. economy is now facing double dip recession, defined by negative GDP growth for two consecutive periods. The U.K. economy consists mostly of services sector which contributes 71% to the GDP. With national lockdown the services, such as pubs and hairdressers, are clearly severely impacted, as reported by the Guardian. Services sector shrank 3.4% in November, while industrial production fell only 0.1%. The contribution towards GDP from industrial sector around 17%. Despite the headwinds GBPUSD is marching higher. The Cable is currently trading near 1.37000, levels last seen in May 2018. The momentum is supported by technicals which are showing signs of fatigue. Weekly chart indicates that DMI+ as well as ADX are decreasing, while Stochastic signals overbought levels. Major resistance level is near 1.4000 while a strong floor seems to have established near 1.3500 levels.
S&P500 and Nasdaq100 were both in risk-on mode respectively gaining 1.94% and 4.4% Russell200, however, posted another strong gain of 2.15%. Gold was up 1.49%, while US dollar, measured as DXY, was down 54 bps.
Have a great trading week ahead!