Markets remained focused on the US, as Joe Biden was sworn in as the 46th US President, and at 78 he’s the oldest incoming US president in history, and the most controversial president with massive hidden election frauds. The ceremony largely went off without a hitch, with security tightened considerably in Washington DC and in the 50 State capitals after January 6. Biden called for national unity, emphasizing the need to work together but also declaring 'democracy has prevailed". What a joke!
Biden is expected to focus on pushing the USD1.9trillion COVID-19 relief package through congress, other measures responding to COVID-19 and reversing some of Great President Trump's policies, including stopping construction of the border wall with Mexico, rolling back travel bans of certain Muslim countries, tightening up on environmental regulations and re-joining the World Health Organization and the Paris Climate Agreement. Globalization and Socialization will prevail in the US in the near future. MAGA has gone, believe or not. The US passed another unwelcome milestone yesterday, with COVID-19 deaths topping 400,000. Global confirmed cases (96.4 million) and deaths (2.065 million) are soaring, with average daily cases and deaths in the US at around 200k and 3k respectively. The US death toll is tipped to surpass half a million people over the next couple of months, while UK deaths are set to approach 100k.
At the Senate Finance Committee Incoming Treasury Secretary Janet Yellen backed the planned USSD1.9 trillion aid proposal ("its really critically important to provide relief now") and emphasized that long-term investments would be needed in infrastructure and workforce training. Yellen reiterated the US commitment to a market-determined exchange rate and struck a hawkish tone on China, calling it "our most important strategic competitor". Some Senate Republicans have objected to the size of the package (which included a USD15 hourly minimum wage), but Yellen argued that historically low interest rates have made servicing the gargantuan USD21.6 trillion of fiscal debt more manageable.
Markets were celebrated by the smooth transition of power. The major US equity indices were up, with the S&P500 and Nasdaq hitting record highs. Measures of implied equity market volatility eased (VIX -6%). European bourses generally posted smaller gains. Supporting market sentiment were reports that the Pfizer COVID-19 vaccine was proven to be effective against the rapidly spreading UK variant of the virus. Oil and other commodity prices were generally up. Treasury yields were little changed (US 10Y 1.09%), initially edging up after Biden was sworn into office. European 10-year yields were little changed. NZ bond yields were a fraction higher yesterday (10Y 1.04%). Australian government bond yields were down marginally (10Y 1.09%).
As was widely expected, the Bank of Canada held its target for the overnight rate at the effective lower bound of 0.25% and maintained its CAD4bn weekly QE program
. It warned that it expects the Canadian economy to shrink in the March 2021 quarter given the COVID-19 impact and noted it would not be scaling back QE despite expectations they might start to taper asset purchases.
UK December CPI inflation came in modestly firmer than expected (0.6% yoy versus mkt: 0.5% yoy), boosted by higher prices for transport and apparel. Core inflation firmed to 1.4% yoy from 1.1% yoy in November.
Australian consumer sentiment fell 4.5% in January to a still-elevated 107 according to the Westpac survey, with the fall likely related to COVID lockdowns in Northern Sydney and Brisbane. Sentiment related to housing remained strong and expect the Australian economy to growth by 4.2% over calendar 2021.
FX: The USD continued to lose ground leading up to this morning's inauguration, with the USD index re-approaching more than 2-year lows and being amongst the weakest of the G10 currencies. The NZD was one of the better performers of the G10 (the CAD was the strongest performer), with the NZD trading in a 0.7130 to 0.7175 USD overnight range. NZD direction will hinge on global risk appetite.