Equity markets in Europe and the US enjoyed rallies yesterday as traders bought stocks on the back of the view that the future Biden administration will be keen to use stimulus packages to support the economy.
In late December, lawmakers signed off on a $900bn relief package but in October, Nancy Pelosi, of the Democrats, was pushing for a programme worth in the region of $2trn.
“In the end, compromises were made in order to get some sort of a package agreed upon. There is a feeling that President-elect Joe Biden will push for more financial support when he takes over the top job later this month,” David Madden, market analyst at CMC Markets UK, told City A.M. this morning.
The S&P 500 hit and the Russell 2000 racked up new record highs so it was a broad based rally.
Market volatility is likely to be low for much of the day as the US non-farm payrolls report will be revealed at 1.30pm UK time today. Economists are expecting the headline reading for December to be 71,000, which would be a huge fall from the 245,000 registered in the previous report, Madden said.
in November, the unemployment rate fell to 6.7 per cent – the lowest reading since March – but the consensus estimate for December is 6.8 per cent. Average earnings are tipped to hold steady at 4.4 per cent.
“Given the upheaval in the labour market, the participation rate has been given extra attention,” Madden stressed, adding that the metric fell from 61.7 per cent in October to 61.5 per cent in November.
“That could be seen as a sign that there is falling confidence in the jobs market. During economic downturns, some people who are out of work get so feed up the weak labour market they stop searching, and that contributes to a falling participation rate,” he explained.
During the week, the ADP employment report for December showed that 123,000 jobs were lost. It was the first negative reading in six months.
Madden pointed out “it wasn’t all bad news” as yesterday’s initial jobless claims reading was 787,000 – the joint lowest level in five weeks. This week, the ISM manufacturing and non-manufacturing reports were released and the employment components of the updates were mixed.
“Lately there has been some growing concerns that the rebound in the US economy is starting to fade so the jobs update will be closely watched. Dealers might adopt the attitude of bad news for the economy is good news for the stock market – stimulus chatter could rise,” he said.
President Trump has finally conceded that the new administration will take over on 20 January. Trump confirmed that he wants to have a smooth transition of power and that should ease traders’ fears about the possibility of violence, like what we saw on Tuesday in Capitol Hill.
Equity markets in Asia and Australia are largely showing strong gains thanks to the bullish moves in the US. The Nikkei 225 hit its highest level since August 1990. European stock markets are called higher, in fact the DAX 30 is set for a record open.
The US dollar enjoyed a decent rally yesterday and that followed the robust rebound witnessed on Wednesday, where it fell to its lowest level in over two and a half years and then it finished higher on the session.
“In the past few months the dollar has seen a few sizeable rebounds but it then ended up rolling over on itself again, so the jobs report today could be very influential,” Madden said.
Gold declined for a second day as the firmer dollar impacted the commodity. Also playing a role in gold’s decline was the bullish run in equities – traders turned their backs on the yellow metal as they wanted to take on more risk.
“Copper rallied again as hopes for Biden’s infrastructure spending plans spurred buying. Brent crude oil and WTI pushed higher to reach a new 11 month highs, as supply worries continue to prop up the energy market,” Madden concluded.