Market Overview

29 December 2020

Markets End the Year 2020 on an Up Note

Just before the end of the year, not many factors are directing the markets. All the three of major U.S. stock indexes just renewed their all-time records this Monday as risk appetite has grown on great news about the long-awaited COVID-19 relief bill. This positive wave from across the pond combined with the U.K. and EU successful last-minute divorce agreement on free trade issues supported both the island and continental assets, so that the German Xetra Dax 30 and the composite Euro Stoxx indexes touched their corresponding peak values of 2020. Even the British shares market had already recovered two-thirds of its previous week's loss despite all newly ordered limitations throughout the country, which are especially strict in the proximity of London, due to a more contagious strain of the coronavirus. 

On December 24 evening, London and Brussels signed a deal that preserves zero tariff access to each other's markets. Now the U.K. parliament will vote to confirm the deal on Wednesday. The opposition Labour party is also promising its support. "We can finally move on from the Brexit drama," said Win Thin, global head of currency strategy at Brown Brothers Harriman. Immediately after the news, the British Pound remained just below the 30 month high of $1.3625 against the U.S. Dollar. GBP/USD just hit it a week before when waiting for this post-Brexit final trade agreement, and then it dropped to 1.34 figure area on profit taking, but the technical range for the British Pound generally moved higher after the deal announcement.

It seems that many equity fund managers as well as the majority of private traders still prefer to bet on hopes just looking beyond the current horizon to see the large-scale immunization effects on the economy in the course of next several months. Some travel-related sectors were also pushed up by this sentiment, with a raft of airlines and cruise lines stocks going higher. American Airlines rose 2.55% and Norwegian Cruise Line climbed 3.86% since the beginning of the week. Airlines were among the clearest winners from the U.S. President Trump's change of heart, as he first achieved political utility in the eyes of his supporters and then finally signed the $2.3 trillion package into law after holding it up with a veiled veto threat. This unlocked some $15 billion in extra aid for the airlines industry. The adopted measures also contained some broader subsidies for small businesses, helped millions of people to receive unemployment benefits and averted a federal government shutdown. Another effect would pause evictions, providing rental assistance, plus add substantially more money for quick vaccine distribution.

Before Christmas, Mr Trump had threatened he could delay signing the relief package. He called the bill a "disgrace" and demanded that Congress amend it to boost direct payments to $2,000 from $600 a week for Americans citizens and "get rid of the wasteful and unnecessary items" from this legislation. Next administration will have to deliver a "suitable" COVID-19 relief package, "and maybe that administration will be me, and we will get it done," he added. By the way, Trump's rival Joe Biden just complained on Monday that his transitory team "encountered roadblocks from the political leadership at the Department of Defence and the Office of Management and Budget". “Right now we just aren’t getting all of the information that we need from the outgoing administration in key national security areas,” he added. So, the "game of thrones" in Washington D.C. is maybe not over. Next round of the political standoff may take place around January 6, when the refreshed Congress would gather to certify the presidential election results. Until then, the markets are unlikely to be disturbed by the politics. However, the relief package also became a stage of fighting for the minds of the Americans.

There is a sense that Congressmen have taken advantage of long bipartisan negotiations to push the most unexpected spending ideas through this bill. For example, among more than 5,000 pages of the document there are parts, which has nothing to do with coronavirus damage for the United States at least, like $566 million for construction projects at the FBI, billions of Dollars of financial aid for Cambodia, Burma, Egypt, Ukraine and other countries, including $25 million for "gender programs in Pakistan", as well as rather exotic expenses like $7 million for reef fish management, $25 million to comeback Asian carp population plus $2 million to research the impact of the falling trees on earth climate.

So, when signing the bill during the Christmas holidays at his beachside club in Florida, Trump was repeating again "a strong message that makes clear to Congress that wasteful items need to be removed." He also added that "much more money is coming", as the Democratic-led House of Representatives voted 275-134 to meet Trump’s demand for $2,000 direct checks on Monday. For some reason, a total of 130 Republicans, two independents and two Democrats opposed the increase on Monday. Increasing the checks would cost $464 billion, according to the Joint Committee on Taxation, which prepares cost estimates for legislation before Congress. But it is still unclear what will happen with the "unnecessary" spending. Many of Trump’s fellow Republicans, who control the Senate, oppose the higher relief payments, and Trump may not have the influence to budge them. The Senate is due to convene on Tuesday, the Republican majority leader Mitch McConnell still made no mention of Senate plans for a vote, but probably it will approve the bill. 

The overall picture for a couple of days before the New Year looks favorable for stock quotes. But the gold is caught in contradictory up and down movements. The final resolution of the situation around the COVID-19 relief bill drops the gold prices lower, while the growth of stock indices forces some market participants to replenish their portfolios with a certain additional share of gold that may spur demand for the precious metal. Moreover, the Greenback is widely expected to stay under some pressure in the very beginning of 2021, because the markets do not feel any strong or urgent necessity to buy safe haven assets for now.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


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