Asian markets drift higher

Republicans block increase in stimulus payments

Asia has a pre-New Year’s Eve look about it today, as an empty data calendar combined with an ever-present headline risk leaves the region’s financial markets content to drift on the currents. Overnight, US equity markets retreated after Senate Republican Leader McConnell effectively blocked increasing direct payments to USD2000. Instead of just saying no, Senator McConnell was much more cunning. He introduced legislation that upped the payments but tied it to provisions regarding social media liability shields and election fraud investigations. None of the latter will be acceptable to the Democrat-controlled House of Representatives.

The move was a master class of political cunning. With one eye on the Georgia election next week, Mr McConnell said yes while actually saying no, whilst simultaneously dodging any potential political blowback next week. The increased fiscal payments never had a serious chance of making it through the Senate, although markets had been pricing a slim hope they would. As reality set in, US equities retreated to a modestly negative close.

The data calendar is empty globally until US Initial Jobless Claims tomorrow evening. It is unlikely that there will be anybody left at their screens to react to it. Markets are likely to drift in this scenario and be more vulnerable than usual to headline surprises. Such scenarios tend to spur risk reduction, and I would not be surprised at all to see equities, precious metals, and commodities ease slightly into tomorrow. It should also be noted that many markets will either partially or fully closed tomorrow. Today, for example, being the last trading day of the year for Japanese and South Korean stocks.

Next week promises to be more exciting. Most prominently, but surprisingly little mentioned, is the dual US Senate seat runoff in Georgia. That will determine who controls the Senate, with a win by the Democrats effectively handing control of all three legislative arms. That result will initially be market negative as those at the top of the K-shaped recovery start calling their tax advisors. However, it will almost certainly mean more fiscal stimulus is on the way in the US, a strong positive for markets. Any dip in equity markets on a Democrat victory will be short-lived.

If all goes to form though, the Republicans will pick up at least one seat handing them control of the Senate. That will make President-elect Biden’s legislative task infinitely tougher to achieve, if not impossible. Mr Biden risks becoming a lame-duck President from the get-go, leaving the Democrats to rue, yet again, snatching defeat from the jaws of victory. However, markets will regard the Republican victory as a positive, nullifying a more aggressive regulatory and spending agenda from the White House.

With politics the only real driver of market direction into the year-end tomorrow evening, wise investors should probably take the same path and enjoy the show from the side-lines.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)