Before the Bell: Bulls in control, calm restored to Capitol Hill
The disturbance at Capitol Hill derailed the process of certifying the Biden electoral victory for a number of hours last night but was then resumed so the final confirmation of Biden’s win should be relatively straightforward.
Moreover, the FTSE 100 had a stellar run yesterday as it closed up more than 3 per cent and it hit its highest level since level early March.
For the third day in a row, the FTSE 100 was the best performer in terms of percentage gains of the major European indices but keep in mind it lagged behind its continental equivalents and now it appears that it is catching up, David Madden, market analyst at CMC Markets UK, tells Morning Wire this morning.
“The British index largely had a handful of mining, banking and oil stocks to thank for its impressive run this week.”
Across Europe
Earlier in the week there were a lot of headlines about sticker restrictions and extensions to lockdowns but traders shrugged off the fears yesterday, probably because it wasn’t a total shock that Covid-19 cases would increase in late December.
“Several countries in European will have to endure tough restrictions in the near term but the longer term view is that vaccinations will continue to be rolled out and that should lead to economies being slowly reopened again,” Madden said.
The European Medicines Agency signed off on the Covid-19 vaccination that is produced by Moderna. Before Christmas, the EU approved the BioNTech’s coronavirus drug, so things are moving in the right direction, but nobody is expecting the process to be quick.
Across the pond
Equities broadly rallied yesterday as traders took the view that the Democrats would win the two seats in the Georgia dual Senate race. News agencies reported that both Democrats are projected to win.
Optimism was dong the rounds because there was a view that the future Biden administration would go down the stimulus route. The Dow Jones jumped 1.44 per cent and set a record close.
“It wasn’t a case of a broad based rally as the NASDAQ 100 finished down 1.4 per cent as there were concerns that President-Elect Joe Biden would bring in laws so big tech companies would pay more in tax. Rioting in Capitol Hill by pro-Trump supporters weighed on sentiment towards the end of the US session,” Madden said.
Stocks in Japan and Australia are showing solid gains on the back of the moves seen in the Dow Jones, Madden added. Equities in Hong Kong and mainland China are in the red as the NYSE has made another U-turn and it will delist a number of Chinese telco stocks.
“The US-China relationship is under strain as the Beijing authorities are taking a tough line against pro-democracy activists in Hong Kong. European markets are being called higher,” he added.
Fed minutes
The Fed minutes revealed last night that there is unanimous support for the ‘outcome based approach’ to the asset purchase programme. The update made it clear that there would be plenty of notice ahead of any reductions in the bond buying scheme.
“Only a couple of central bankers are open to the idea of purchasing longer-dated bonds. The minutes pointed out that the economic recovery has been better than expected but lately there have been some signs of a softening of the rebound,” Madden said.
The US dollar has been on a bearish run lately and yesterday it fell to a 33 month low but then saw a sharp rebound. The strength of the turnaround could be a sign that we have seen the low in the US dollar in the near-term.
Madden pointed out that gold was already drifting lower from mid-morning yesterday and the move higher in the US dollar in the afternoon sped up its decline.
“Recently, the inverse relationship between the yellow metal and the dollar has been strong so that was a large factor in gold’s bearish move. The impressive move higher in indices like the Dow Jones and the FTSE 100 hurt the commodity too as traders shied away from lower-risk assets,” he remarked.
Oil
Oil had a monster rally on Tuesday on the back of aggressive output cuts from Saudi Arabia. Yesterday it was announced that the oil producing nation raised the price of February crude oil for Asia.
The EIA report showed that US oil inventors fell by over 8 million barrels, which speaks to high demand. Brent crude oil and WTI closed up 1.3 per cent and 1.4 per cent, respectively. The oil market hit an 11 month high.