Holiday Hangover

Holiday Hangover

Equities 5 minutes to read

Summary:  Traders rang in the new year with much of same spirit that invigorated risky assets throughout the year prior, the push, pull of vaccines VS. virus spread.


Traders rang in the new year with much of same spirit that invigorated risky assets throughout the year prior. The push, pull of vaccines and mounting virus spread continues to drive sentiment.

Globally COVID-19 infections pushed through 85 million and daily cases in the US hit a record. The highly contagious mutant strain likely to add to this record in coming weeks. With the pandemic showing few signs of slowing, the end of year party that saw the S&P 500 up almost 20% in the final 2 weeks of the year hit the pause button. Taken in the context of the final trading weeks of 2020, Wall Street’s drop to kick off the year is nothing to write home about. Another factor reminiscent of 2020, dip-buyers are still in play as investors look forward to an improved global economy in 2021 – we are closer to the beginning of the end, than the beginning – with ongoing stimulus spending and vaccine rollouts on top.

In Asia trade, regional indices took a sanguine approach to US stock’s slide and bitcoin recouped some of its losses, following a plunge of as much as 17% on Monday – that, again at the risk of losing perspective, revisited levels of 3 days prior. The parabolic gains across the notoriously volatile crypto space cannot be expected to be anything but correction prone, albeit within a broad move higher.

Traders are now holding out for the next risk event, today’s runoff Senate elections in Georgia, which will determine whether Democrats have a deciding vote  – if the Dem’s win both seat, Kamala Harris will have the deciding vote in Congress.

With a Democrat bent in the Senate the expectations of big fiscal, higher taxes and anti-trust scrutiny for big tech come back in to play. 10-year breakeven rates, now above 2%, are already marching higher, a renewed “blue wave” could further boost this move, along with continued topside break out for longer dated yields.

Should the Democrats take the final 2 run-off seats, the reflation trade should get a fresh kick with an incoming Biden already spruiking the $2000 stimulus cheques back on the table. The USD should continue its precipitous slide with more weight behind the big fiscal and Yellen Treasury/Dem Senate MMT push. And multiple highflyers/long duration stocks could feel the pinch of reflation, higher long bond yields and for big tech, antitrust scrutiny.

In FX, following through yesterday’s move and in keeping with the weaker USD theme, USD/CNH continues to slide blasting through 6.44 and pushing toward 6.42, a lead for $Asia lower. The stronger CNY fix doing little to pushback on bullish yuan traders, along with news the NYSE is scrapping delisting plans for Chinese Telcos.

With the incoming hurdle of the run-off elections and short term froth/retracement risk aside, there is little change in our overarching view of late 2020 that Emerging markets, Asia, Commodities and bets on higher inflation (base effects, pent up demand and supply crunches) are the place to be. Alongside a shift in market leadership toward more cyclically orientated stocks, sectors (energy, materials, industrials, financials and travel and leisure stocks), and geographies, with 2020’s highflyers hampered by rising long end yields. Factors which are a positive catalyst for the cyclically weighted ASX 200 index in the year ahead.

Higher inflation, a synchronised global growth reacceleration and easy central banks against the backdrop of more fiscal stimulus, keeps bears at bay sustaining gains across preferred exposures as economic recoveries resume into Q1.

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992