Thursday 14 January 2021 6:52 am

Before the Bell: Europe called higher as Biden is due to announce $2trn stimulus

Volatility in the markets was low across the board yesterday. There was no change to the macroeconomic outlook. “Hence why trading ranges were relatively small. Equity markets in Europe and the US had muted sessions,” David Madden, market analyst at CMC Markets UK, tells City A.M. this morning.

“The health crisis is still bubbling away in the background, which means that governments are expected to maintain their current lockdowns. To an extent, that is being counteracted by the distribution of vaccines but realistically speaking that process will be drawn out,” Madden said.

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After the close of the European markets, Italy was plunged into a political crisis as the Viva party withdrew its support for the ruling coalition. The move could trigger a new general election. “In light of the Covid-19 crisis, this is the last thing the indebted country needs,” Madden noted.  

Stock markets saw strong gains last week, whereby the FTSE 100 notched up a 10 month high. In addition to that, the DAX and the US indices registered record highs.

US stimulus package

The bullish sentiment is largely fuelled by the view the US President-elect, Joe Biden, will announce stimulus spending this week. “The chatter is the spending programme will be $2trn, he said.

“We should hear from Biden today. Essentially, the markets have been in a holding pattern for the past three days as dealers have been waiting to hear from Biden,” Madden noted. “To an extent, a large amount of positive news has been factored into stocks and commodities.”    

At the end of last month, US lawmakers approved a $900bn coronavirus relief package. Compromises had to be made across the political divide, but he pointed out that, in a few weeks, Democrats will have full control of the US government so it will be in a position to enact change easily. Their majority in the Senate will be tiny but they will control the upper house nonetheless.

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Overnight, China posted its trade data for December. Imports came in at 6.5 per cent, while the consensus estimate was 5 per cent. The November reading was 4.5 per cent. Economists were expecting exports to be 15 per cent, Madden said, but it was 18.1 per cent, which showed a cooling from the previous reading of 21.2 per cent.

“The robust imports metric speaks to rising internal demand. China is a major producer of personal protective equipment so the shipments are likely to be a high percentage of exports,” Madden observed.

“Despite the solid import figures, stocks in mainland China are in the red, by contrast, equities in Hong Kong and Japan have gained ground. European markets are on track for a positive start,” he added.

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Currencies and commodities

Sterling has been moving higher since mid-September. Confirmation on Christmas Eve that the UK-EU trade deal was struck helped, the subsequent approval of the agreement by both sides added to the bullish move.

On Tuesday, the pound was given a lift after the Bank of England chief, Andrew Bailey, said that negative interest rates are a controversial policy. The central banker also said that it was too soon to unleash addition stimulus. The comments helped the CMC GBP Index hit its highest mark since early September yesterday.

WTI and Brent crude oil finished in the red last night, Madden continued. The energy market was lifted following the release of the Energy Information Administration report as it showed that US oil inventories fell by 3.24m barrels, while the consensus estimate was for a decline of 2.55m barrels. Gasoline stockpiles rose by 4.39m barrels – a bigger build than expected. Oil slipped back from its recent 11 month highs.    


Lael Brainard of the Federal Reserve said the near-term outlook is challenging and the economy is far from achieving its goals.  Jerome Powell, the Fed chair, will be speaking today at 5.30pm UK time. “Powell’s update will be closely watched in light of the mixed US non-farm payrolls report last week,” Madden concluded.

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