Daily Market Commentary 7th January 2021

Risk appetite surged overnight with the prospect of even greater amounts of fiscal spending on offer, as the Democrats look like takingboth the Georgia Senate seats and the Senate. This will give the Democrats control over all three branches of Government (House, Senate, Presidency). Wall Street expectations are for great fiscal spending, in addition to the unprecedented monetary expansion, being executed by the Federal Reserve. The allowed US equities to surge to record highs, while the Bond Yields rose strongly, with the 10 year bursting through 1%. The Dollar remains under siege, with the EUR trading 1.2305, while the GBP pushed up to 1.3615.

The surge in risk appetite and flagging reserve allowed the AUD to regain 0.7800, while the NZD broke above 0.7300! The virus and lock-downs appear to have taken a back seat and markets are storming back into 2021 trading. In the US, a joint sitting of Congress is meeting to confirm the Electoral College and Joe Biden as President Elect. The ADP Job Report sent a warning to markets, cutting private sector jobs by 123,000, for the first time since April. This may foreshadow a deterioration in Non Farm Payrolls and rising Unemployment?

There are dark warning signals around markets although the sheer size of the monetary stimulus drives asset bubbles. The historic equity levels are funded by monetary and fiscal stimulus, deficit/debt be damned. These are tumultuous times, so expect volatility. Commodity currencies are beneficiaries currently, but remain extremely exposed to global ‘black swan’ events.