Week from 4 to 10 January 2021
Two events could have hit equity markets hard after the holiday season. First, the US economy lost 140,000 jobs last month (significantly less than the consensus estimate for a still-weak increase of +70,000 jobs) as the country continues to grapple with the COVID-19 pandemic. Second, Democrats took control of the Senate on Wednesday after winning both runoff elections in Georgia and Trump supporters stormed the Capitol building to block Biden’s win. Earlier, Donald Trump had encouraged them to protest the election result, pushing Twitter to permanently cut off his personal account and access to his nearly 89 million followers. US President-elect Joe Biden then delivered an impassioned speech, broadcast on TV news, calling Wednesday 6 January “one of the darkest days” in the nation’s history (5 dead, Congress evacuated, National Guard activated), “an assault on democracy”. Fortunately, violence in Washington did not spill overnight and democracy resumed its rightful place.
Surprisingly, investors eventually shrugged off the insurrectional movement, focusing on COVID-19 vaccination campaigns across the world and US stimulus expectations. Risk sentiment also improved after Fed Vice Chairman Richard Clarida’s statement. He said Friday he expects the US central bank to “keep the current pace of its asset purchases throughout the rest of this year.”
All in all, it was a bullish run to start the year. The Dow closed at a record high Friday (31,097.97, +1.61%). The S&P 500 was up +1.83% while the Nasdaq Composite rose +2.43%. Small cap stocks outperformed their large cap counterparts (Russell 2000 up +5.91%). European and Asian markets followed suit (MSCI EMU up +2.85%, MSCI Pacific up +2.88%). Emerging markets did even better (MSCI EM up +4.78%).
Energy stocks (up +9.31%) supported the broader market as WTI crude jumped above $52 for the first time since February 2020 (+7.67% year-to-date), after Saudi Arabia pledged to slash its oil production by an extra one million barrels per day in February and March to offset a rise in output from OPEC+, led by Russia and Kazakhstan. Other value sectors such as materials (+5.68%) and financials (+4.65%) kept gains in check. The latter, which will kick off the earnings season next week, were helped by the T-bond selloff which pushed the yield on benchmark 10-year US Treasuries up to 1.13% (+20bps YTD) for the first time since the end of February 2020. By contrast, the yield spike hurt real estate (worst performer of the week with -2.55%).
In credit markets, investment grade corporate bonds moved in opposite directions on both sides of the Atlantic (+0.17% in Europe, -0.87% in the US). Unlike high yield bonds (+0.44% in Europe, +0.32% in the US), emerging debt was hit (-0.73% in local currencies) by higher Treasury yields.
Lastly, the yellow metal finished the week with its biggest decline since November (-3.15%, losing almost $60 at $1,835.40/Oz) though gold traditionally acts as a good hedge in a stalling labour market. This was not the case this time because yields surged to February highs and all three legislative houses have come under Democrats’ control, bringing more politicial stability at first sight.
Find the full report here : https://www.trackinsight.com/en/weekly-flow-report/2021-01-08/global
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