Stocks steady, NFIB plunges, GBP strengthens

US stocks are steadying following yesterday’s decline as investors remain optimistic that Biden will unveil a multi-trillion fiscal stimulus plan on Thursday, the Fed is still far away from tightening, and that vaccine rollouts have the world nearing the other side of COVID.  Yesterday, the Fed’s Bostic noted that a rate hike might be more in play in the second half of 2022, much sooner than Fed’s consensus view of raising at the end of 2023.  If inflation rises too fast that could pose a problem, but we are still nowhere near that and tomorrow’s CPI data should ease concerns.  Vaccine rollouts have been messy, but as more vaccines get regional approval, risk appetite is thriving as we get closer to the other side of COVID.

The NFIB Small Business Optimism Index confirmed the December labor market weakness seen in last week’s nonfarm payroll report.  The small business index plunged as expected given President Trump’s defeat (small businesses loved Trump) and all the stimulus uncertainty due to Georgia Senate runoff races, and rising lockdown risks that remained in December.  Businesses had no idea we were going to see a Blue Wave and that vaccine targets would be boosted. Wall Street is looking beyond the NFIB’s headline index drop to 95.9 which brought it below the historical average of 98.  Small businesses are expected to see more relief under a Biden administration and that should help the index rebound next month.

Pound rallies on Bailey comments

The British pound rallied against all of its major trading partners after BOE Governor Bailey signaled resistance to negative rates, while the central bank’s Broadbent indicated the economy is in better shape than it appeared.  UK money markets have now shifted a 10bps interest rate cut to 0% from August to December.

The euro remains sluggish as risks for a double-dip recession remain elevated.  German Chancellor Merkel noted that lockdowns could last another eight to ten weeks until early April.

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