In the final hours of Donald Trump’s presidency, investors are turning the spotlight on Joe Biden.
As Biden is about to enter the White House, several City-based analysts discuss what the new administration may have in store for different markets and parts of the economy.
US Treasury Secretary nominee Janet Yellen reaffirmed her belief in the importance of the stimulus package proposed by the incoming administration.
Senior analyst Ricardo Evangelista of ActivTrades said these goals, alongside the Fed’s dovish monetary stance, could decrease interest rates and weaken the US dollar.
“The combination of these two policies is likely to decrease real interest rates even further, generating conditions conducive to further dollar weakness,” he noted.
Meanwhile, Axi’s chief global market strategist Stephen Innes stressed Yellen’s firm footprint on markets by supporting maximum policy overdrive.
He believes this could encourage more US dollar shorts if monetary and fiscal policy are singing from the same hymn sheet.
“Janet Yellen placed an unwavering and staunch dovish footprint on markets by supporting maximum policy overdrive, which should encourage more US dollar shorts on the view that monetary and fiscal policy are singing from the same hymn sheet and one of a maximum possible stimulus,” he said.
Virus case numbers have decreased this month and social-distancing measures look to ease while there is a possible extension to the short ban on equities for another three months, Innes added.
Oil and commodities
There could be a rapid rise in energy prices, according to Innes.
“Commodity markets are cheering that Biden favours a large infrastructure set included in a Covid-19 relief package,” he said.
Oil continues to trade on rocket fuel via the stimulus effect and weaker US dollar.
“Oil up, dollar down doesn’t get much better for the reflationary trade and the street is running with it,” Innes noted.
“Dr Yellen has upsold this package so well that oil traders are repricing in a bigger stimulus punch thinking it’s going to be big either way,” he added.
Innes believes the Democrats will be aware of Obama’s mistake of not going big enough on fiscal support after the financial crisis, seen by many as the reason for his election loss.
“We should expect a large fiscal package,” Innes said. “Which in my view is still in the process of getting repriced higher in risk markets.”
Janet Yellen has adopted a “go big” approach to repair the economic damage caused by the pandemic and highlighted the importance of helping small businesses and the unemployed.
Yellen received criticism from Republicans that the $1.9tn plan was unaffordable given that its budget deficit is already running at 15 per cent of gross domestic product and its national debt is close to 100 per cent of GDP.
Therefore, Ben Gallagher, co-founder of creative management consultancy B+A, believes Biden’s biggest challenge is building a credible path towards unity.
“There is a sense among analysts that this could well define Biden’s whole presidency,” Gallagher said. “Throughout his campaign he spoke to ‘you’, the voter, on a human level.”
Now is the moment he must translate this one-to-one approach into results, he argued.
“Unity speaks to human values. Listening, compromise, tolerance and acceptance. Values that seem in shorter supply now more than ever,” Gallagher continued.
“It also gives him a chance to slowly rebuild a sense of American national unity that might just tip the balance towards him achieving his longer-term social, political and economic objectives,” he concluded.