Holiday Hangover

Equities 5 minutes to read

Eleanor Creagh

Australian Market Strategist, Saxo

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.

Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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 (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
Most of our staff in Singapore are working from home to help limit the spread of the coronavirus. We remain at your service on the details below. Thank you for your understanding.

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.