No, the title is not an Elon Musk-like tweet that will send an army of retail traders looking for companies with range, ranging, ranger etc. in its name, to send higher by 1000% on the day via the options market. They may see Reddit at my comments, but if money-making Signals were that Etsy, I wouldn’t be sitting her toiling over my laptop to bring you editorial entertainment each day.
Instead, ranging is a summation of the state of play in the financial markets at the moment. The reduction in risk seen yesterday in Asia was a function of the first glimmer of reality that President Biden’s stimulus package won’t be rubber-stamped meekly through the US Senate. The one ring to rule them all though remains the FOMC statement that will be accompanying their rate decision this evening.
A strong directional move by markets is nigh on a certainty. Its direction depending on the wording of the statement, and the comments made by Jerome Powell afterwards. With the inflationistas circling, Mr Powell and the FOMC will need to drive home their lower for longer message, lest a mini taper-tantrum erupt. That won’t be good for equities, precious metals or emerging markets, but should be positive for the US dollar, notably versus the commodity currency grouping. If Mr Powell releases the doves and backstops (or is that GameStop? Buy it anyway), we should be back to buy everything business as usual. FOMC, after all, is only one letter difference from FOMO; that can’t be a coincidence.
Any rally post-FOMC may receive a tailwind from US earnings releases. Microsoft posted record quarterly earnings overnight, boosted by its Azure cloud. Markets will be expecting much of the same from Apple and Facebook this evening. Tesla also reports, although markets will be more focused on their delivery targets for 2021 rather than earnings, which have long been divorced from reality.
Markets have received a double boost in Asia this morning, with equity markets of to a good start. China Industrial Profits climbed 20.1% YoY for December, signalling that China’s growth story, and by default, the rest of Asia, remains on track. Secondly, Democrat Representative Jarod Golden has tweeted that a bi-partisan group of Senators and Representatives are working hard on the Biden stimulus package and that Senate reconciliation is “off the table at the moment.”
Senate reconciliation is a nightmarish process of passing bills in a piecemeal approach with the Senate voting for each part. Some aspects of the Biden package requiring 60 votes to pass. Think of it as having a giant pavlova being put in front of you but being told you can only eat one berry or piece of meringue at a time. And after each mouthful, you must get permission to take another mouthful, which may or may not be given. The fact that Rep. Golden is neither a Senator nor a Republican should also be a cautionary note, but I don’t want to get in the way of a good story. Markets in Asia are reacting positively to the headline.
The rest of the day’s data calendar across Asia, Europe and the US is low impact. The FOMC remains the week’s critical event, and I expect markets to continue ranging ahead of it.
