Quiet start to the week

A quiet start to the week, with the US bank holiday meaning trading is likely to remain extremely thin throughout the session.

European stock markets are mixed, lacking any real direction, as has been the case for much of the last week. With so much good news priced in over the last couple of months, stock markets have been running on fumes. There doesn’t appear to be much of an urge to sell at this point but perhaps a little more caution is creeping in.

The focus the last couple of weeks has been around US yields against the backdrop of a massive potential stimulus package. Fed policymakers have been keen to warn off speculation around tapering or rate increases which has taken some of the edge off, but yields remain elevated compared to the last 12 months.

That’s continued to spur interest in the dollar, which is enjoying something of a short squeeze. It’s still only made up a tiny amount of lost ground since late March or even compared to pre-pandemic levels, so it could have a little further to run yet, especially if the Fed fails to convince.

With Joe Biden assuming the Presidency in two days, the new administration will seek to get to work quickly on its proposed USD1.9 trillion stimulus package, the outcome of which could determine the path of travel for stock and bond markets. With such a slender majority in the Senate, Biden may be forced into compromise if he wants to get this over the line which may not be a massive blow in either case, depending on where that comes.

With vaccines being rolled out and the end of the nightmare in sight, countries around the world are turning their focus to the recovery. China is already well ahead in this regard, with data this morning showing just how far ahead they are.

The country grew 6.9% quarter on year, taking 2020 growth to 2.3%, which is not bad at all under the circumstances. Strong demand for exports is supporting the ongoing rebound in China, the only major economy to be enjoying any growth. Obviously, there’s still a long way to go for the country to get back to where it wants to be, with consumption and debt a focus once again but under the circumstances, policymakers will be relieved.

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