Market Overview

A new and reportedly highly infectious strain of the same obtrusive coronavirus which was discovered at the British Isles and then also found somewhere in mainland Europe, had propelled into a rather strong downside intraday market correction on Monday. The UK 100 Index on the London Stock Exchange lost 3.2% in just four hours while the composite Euro Stoxx 50 fell even more as a reaction. But both the European continental and the British stocks generally recovered during the last two trading days before Christmas, as well as the U.S. stock indexes, including the major S&P500 broad market indicator that initially lost more than a hundred points almost touching the levels near 3600 points, but then quickly rebounded to the 3700 area again.

Something similar happened with gold, which first soared above $1900 per troy ounce due to its partial safe-haven status, but then came back to more regular levels around $1870. The Greenback and the U.S. bonds were also in demand probably for protection purposes. Therefore, GBP/USD touched 1.32 at one moment but then recovered again to 1.34 and even higher on Brexit trade deal hopes. With a lack of working days left in 2020, investors are still on edge over whether the U.K. and the EU negotiators can agree. EUR/USD tried 1.2130, still consolidating high above the psychological 1.20 support.

The main positive driver for now is the fact that, after months of inaction and abortive talks, the U.S. Congress finally passed a bipartisan COVID-19 relief package. The $892 billion bill includes $600 payments to most Americans as minimum direct government assistance to millions of U.S. citizens, additional money to the people thrown out of work during the pandemic just in time as most of the earlier benefits expired last Saturday, including one-time subsidies for small businesses. Federal funding was also adopted to avert a government shutdown, all together worth about $2.3 trillion in spending for the rest of the fiscal year that ends September 30, 2021.

This story is already priced a lot but still it helps the market. There is now another joker in the political card deck, it may be considered to be another barrier or an opportunity. In order for the bill to now be passed into law, it must be approved by the sitting U.S. President Donald Trump. But he predictably interfered by putting a crease in the Congress’s scheme of a coherent plan for financial action which has been agreed after months of wrangling in Congress. Before the very end of the terrible year, Mr Trump changed the game again: in a video posted on Twitter, Trump said this stimulus bill was "a disgrace" and that he wanted to increase "ridiculously low" $600 checks for individuals to $2,000. That's true, of course, as various advocacy groups had appealed this before saying that the new round of aid was going to be far from enough to help Americans who have been struggling for months, and also that it came too late. Some called Joe Biden to do more in the beginning of 2021 but Trump wants now to do this move himself, or to make it seem like the subsidies had a happy ending, courtesy of his engagement. 

The possibility of a delay to such long-awaited spending plans first sent the S&P500 index futures slightly lower in early Asian hours, but it soon recovered to return to levels near to Tuesday's close. Gold prices and the U.S. Dollar have barely reacted at all. "Personally we think the President will sign the bill at the last possible moment," said Andrew Brenner, head of international fixed income at NatAlliance. "But the true reality star will wait until the end. Bond markets close 2 p.m. Thursday while stocks close at 1 p.m. - it may go down to the last moment,” he resumed. Then at least some money may be able to get to the accounts of citizens before New Year’s Eve. Another possible scenario is that Trump's last moment push for higher stimulus could lead to a spending increase as the Democrats probably do not want to look like sacrificial goats in the eyes of the electorate. The bill could be amended if congressional leadership agree to do so, and if they don't, Trump's choices are to sign the bill into law, or veto it, or just do nothing and let it become law in a natural way without his autograph signing session.

Meanwhile, the market community is preparing for the Christmas holiday pause and looking beyond fears about the new corona strain. Most of them may now feel that holiday lockdowns won't have much of an impact on corporate profits, in a the scenario where the most severe restrictions would end by mid-January, rather than being extended for a longer period. Even numerous orders for Christmas gifts could be made online, which is what is happening now everywhere.

So the market crowd seems to be rather relatively calm in holiday-thinned markets. Some recorded and fixed a profit on the most overpriced stocks like Tesla, despite the inclusion of the Elon Musk's offspring into the official S&P500 list, valid from December 21. Some assets that fell too fast and deep at the beginning of the week, the market chose to buy quickly, so that the prices rose again, as happened with Boeing and McDonald's.

Shares in Apple jumped far above $130 on Tuesday, approaching the all-time high for the first time since August and "adding more than General Motors' entire market capitalization to the value of the iPhone maker on signs it was planning to move forward swiftly with electric car production," Reuters reported. Sources said on Monday that "Apple, whose automotive efforts had proceeded unevenly since 2014, was now targeting 2024 to produce a passenger vehicle that would include its own breakthrough battery technology." Battery costs are usually cited as the main obstacles to mass adoption of electric vehicles. By the way, this news hit shares of Tesla, which immediately accelerated the profit-taking on Tesla assets as Apple may become a stronger competitor for the Elon Musk company.

And last but not least, the banking sector received a powerful boost thanks to the U.S. Federal reserve's decision to allow banks to engage in the buying back of their own shares. This immediately raised the prices for big banking stocks, such as, Citigroup, JP Morgan Chase and especially Goldman Sachs, which soared more than 6% on Monday and then made some price adjustment yesterday.

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