Market Quick Take - December 29, 2020 Market Quick Take - December 29, 2020 Market Quick Take - December 29, 2020

Market Quick Take - December 29, 2020

Macro 6 minutes to read
Picture of John Hardy
John Hardy

Head of FX Strategy

Summary:  Global equity markets are gunning to close the year on a high note, with major US indices posting new all-time highs yesterday and Japanese stocks exploding higher in the session overnight. In the US, the House of Representatives approved the President Trump proposal for $2,000 stimulus checks, as the focus now switches to whether the Republican-controlled Senate will consider the bill.

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) the major US equity indices closed higher and traded higher still after hours after the US House passed Trump’s proposal for the larger $2,000 stimulus checks with strong bipartisan support, though whether the Senate will vote on the proposal or a different one is to be determined. There is no readily identifiable chart resistance, but the calendar year roll into 2021 is a key milestone, and big round numbers have been influential for both the Nasdaq 100 and the S&P 500 Index, with the next levels there at 13,000 and 3,800, respectively.

Japan Nikkei 225 (JP225.I) Japanese equities exploded higher in the Tuesday session, with the large cap Nikkei 225 Index up over 2.5% overnight in its strongest session in months and after a long period of subdued trading that was capped just below the 27,000 level, which now becomes the key trend support after this huge move.

AUDUSD and EURUSD – the USD fell after the House yesterday approved Trump’s proposal for $2,000 stimulus checks, and if the Senate moves forward with something on this scale, it accelerates the sense that the government’s overt money printing (mostly absorbed by Fed QE purchases) could boost inflation down the road unless recipients of stimulus choose to add to their savings (which they in part did with the original stimulus checks). If the economy experiences a strong comeback on a successful rollout of vaccines in coming months, personal spending on pent-up demand could bring a rush of inflationary pressures and with it very negative real interest rates in the US (and a lower US dollar) unless long treasury yields are allowed torise significantly. For now, we focus on the roll into the calendar year for the US dollar and note that trend support for these two key USD pairs i

GBPUSD and EURGBP – the sterling rally in the wake of theBrexit deal has simply not happened, which could mean further near-term downside for GBP on the disappointmentforthose positioned for a rally, especially if GBPUSD can’t fight its way back above the1.3500 level and especially if EURGBPcan’t push back down below 0.9000. In thelonger run, sterling looks cheap, but will look less so if the dynamic described above for the US (negative real interest rates as inflation rises on a huge fiscal impulse) is also seen in the UK.

Treasury yield curve steepened slightly with 10-year yields closing 1bp higher (10YUSTNOTEMAR21)Despite light trading volumes yesterday, the Treasury auction of 2- and 5-year notes went well. Treasury yields ended up slightly cheaper with the 10-year yields closing at 0.93%.  Today the Treasury will end the week with a 7-year auction.  

Italian BTPs rally with 10-year yields falling 4.6 basis points to 0.536% (10YBTPMAR21) - The Italian General Confederation of Enterprises yesterday released data that suggest that 390,000 businesses closed for good in 2020 because of the pandemic. It is becoming obvious that a V-shape recovery is less likely and that the economy will continue to need the support of the ECB throughout next year.

What is going on?

High yield US corporate credit spreads to US treasuries hits new cycle lowA Barclay’s measure of US high yield credit spreads hit 361 basis points yesterday, down 15 basis points from last week’s close and at a new cycle low since late February. By comparison, this yield spread benchmark peaked out at 1100 bps in March and was still as high as 500 basis points at one point in early November. One focal point for credit traders next year will likely be whether a hoped return of “normalcy” in the wake of a hopefully successful vaccine rollout will see the focus switch from liquidity to solvency, but for now, financial conditions have rarely been easier.

The price of EUcarbon permits (ECEUA – CFIZ1jumped to a record €33.4/ton yesterday after Europe set stricter pollution limits that will punish the use of fossil fuelThis at a time where unseasonal cold weather and lower wind generation has given the contract a further push with Dutch benchmark TTF gas rising to a two-year highThe contract has risen 35% this year, putting it ahead of gold as one of the best commodity-linked assets. Morgan Stanley expects that by 2025, prices may need to more than double to €76/tons as the EU attempts to cut emissions by at least 55% of 1990 levels by 2030. 

Money managers are gearing up for additional broad commodity gains in 2021. In the week to December 22, the last full reporting week of the year, they increased bullish bets on 24 major futures contracts by 40k lots to 2.4 million, the biggest net long in almost four years. Energy and agriculture both accounting for a 1 million lots with the remainder split across five metals contracts. Top five in terms of biggest bullish bets being WTI & Brent crude oil(617k)corn (266k), natural gas (252k), sugar (190k), soybeans (189k) and gold (137k). The buying, especially during the second half, has been driven by a weaker dollar, strong Chinese demand for key crops, weather worries, reflation hedges and general assumption that supply for some key commodities may struggle to meet the expected vaccine led recovery. 

What we are watching next?

In the US, the Georgia Senate run-off elections – there are still two US Senate seats up for grabs in the state of Georgia, and polls for both races are impossibly tight (and we have all grown accustomed to not trusting US polls), which means there is still considerable drama on whether the Democrats under the incoming Biden administration might just have control of the Senate if they are able to win both seats (which would split the Senate 50-50, enabling VP Harris to cast the tie-breaking vote.

Will the US Senate pass the $2,000 stimulus checks approved by the House? Some House Republicans joined Democrats to approve a bill by a more than two-thirds majoriythat would replace thecurrent $600 stimulus checks with President Trump’s proposed $2,000 checks, while also expanding the eligibility of who can receive the checks to higher income limits than the recently passed package and would also include adult dependents. All told, the stimulus check alone would cost nearly half a trillion dollars, or more than 2% of GDPMany Republicans in the Senate spoke against the larger checks, and it is unclear whether Senate Republican majority leader McConnell will avoid bringing the House bill to a vote or move forward with an alternative proposal. Regardless, Republicans are in a bind if they are to go against Trump, who enjoys overwhelming popularity among Republican voters - and Democrats are in favour of more stimulus..

Economic Calendar Highlights for today (times GMT)

1400 – US Oct. S&P CoreLogic Home Price Index
2100 – South Korea Jan. Business Survey for Manufacturing / Non-manufacturing
2230 – Weekly storage report from the American Petroleum Institute
2300 – South Korea Nov. Industrial Production



Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.