Stocks bounce back, Yellen Testimony eyed, BAC earnings, Euro holds gains after ZEW, Oil rebounds, Gold higher, Bitcoin’s competition.
US stocks are off to a strong start as investors focus on President-elect Biden’s COVID relief bill and as earnings season heats up. The US will see more stimulus in Biden’s first 100 days, but the question is will some Republicans in the Senate play ball with the Democrats. It is very unclear how life after President Trump will be, but some Republicans up for re-election in 2022 could take Biden’s $1.9 trillion plan as an opportunity to distance themselves from the Trump administration. The headline figure will likely come down a bit but if Republicans show a willingness to coordinate with Democrats, risk appetite has not priced that in. Biden’s Cabinet appointees grilling in the Senate and the Trump impeachment proceedings will garner much attention, but many political insiders will look to see if some Republicans don’t immediately reject everything the Democrats bring to the table.
BAC
Bank of America was the big earnings report this morning and Wall Street liked the $2.9 billion buyback announcement and shrugged off the disappointing fixed income trading results. Fourth quarter FICC trading revenue came in at $1.74 billion, a miss of the consensus estimate of $2 billion. Equities trading revenue impressed at $1.32 billion higher than the $1.16 billion estimate. EPS came in at $0.59 a four cent beat, while net interest income came in at $10.37 billion, slightly better than the consensus estimate. BOA shares held onto earlier gains but they were nothing to get excited over.
FX
The euro held onto gains after better-than-expected German ZEW data. Hope is coming back to Germany despite more restrictive measures. Expectations are rebounding in Germany but still are not quite at the September levels. If Friday’s German flash PMI surprises to the upside, we could see the euro outperform.
Oil
Crude prices are rallying following a weaker dollar but are nothing to brag about considering the slide seen at the end of last week. COVID new variants from the UK and Denmark have the energy markets nervous that the short-term outlook could get a lot worse. Both new variants are more infectious than the original virus and that could lead to the tightening of restrictions across the globe over the next couple of weeks.
Crude demand forecasts will see many updates over the first half of the year as no one can get a handle on when the tightening of virus restriction will end. The IEA monthly report trimmed their 2021 global oil demand forecast by 0.3 million barrels, bringing the recovery a 5.5 million barrel per day boost to 96.6 million this year. Vaccine rollouts have mostly disappointed across the globe and new virus variant risks will hurt the recovery in the first quarter.
WTI crude seems destined to consolidate in the low-$50s a little while longer.
Gold
Gold prices are rallying ahead of an expected dovish testimony from Treasury Secretary nominee Janet Yellen’s and as pandemic restrictions tighten globally. The advance in gold clearly followed the strong start in global equities, which saw the dollar decline against most of its major trading partners.
Yellen’s Senate confirmation hearing is expected to affirm the US commitment to market-determined exchange rates and support Biden’s $1.9 trillion stimulus package proposal by telling lawmakers they need to “act big” with the next COVID relief bill. Gold could see added gains if Yellen seems unconstrained about more spending and adding to the engorged balance sheet.
Much of Yellen’s dovishness is priced in, but it could still serve as a bullish springboard for gold as investors prepare for another wave of ultra-easiness now that the Fed and Treasury will have improved coordination. Permanent economic scarring to the economy will keep fiscal stimulus coming for the next couple years even as the US economy is clearly on the other side of COVID.
If gold could see steady inflows as virus restrictions tighten across the globe and eventually trade between the $1850 and $1900 trading range.
Bitcoin
Bitcoin is higher today but completely underperforming to its rivals. Ether, Polkadot, Litecoin and many others are all surging as crypto investors anticipate a consolidation phase for Bitcoin. It seems ballooning deficits and inflationary pressures are taking a breather in sending Bitcoin higher. The cryptoverse is growing again and right now many cryptocurrency traders are diversifying into other coins in fear that Bitcoin could see another collapse if $41,500 is not reached sometime soon.
