Readers can relax; this is not another flying story. I am referring to the technical reversal pattern, which in the case of asset classes overnight, refers to financial instrument making a fresh high before closing below the low price traded the previous day. That is a bearish formation, and quite a few of them have appeared overnight.

By my reckoning, the S&P 500, Nasdaq and Dow Jones, both Brent crude and WTI, GBP/USD, AUD/USD and NZD/USD all traced out bearish outside reversal days. I suspect there may be more, but I ran out of fingers to count them on. Notably, all of the group mentioned above are at the wave front of the global recovery, zero per cent money forever, buy everything trade.

I will admit that outside reversal days in 2020 were somewhat of a fools’ errand. This time, the difference is that today in the United States, we have the dual Senate seat election runoff in Georgia. A double win by the Democrats will hand control of all three legislative organs of government to them, and an almost unfettered ability to adjust taxation and enact fiscal stimulus. Conversely, just one win for the Republicans will leave them with a blocking stake in the Senate to any Biden legislative agenda.

Quite clearly, all the financial instruments above, with perhaps the exception of oil, retreated overnight ahead of today’s elections. Elections I note, that are too close to call, and whose final result could drag on for days. A Democrat win is being perceived as a negative for markets, in the short-term at least. No doubt in part, as many at the top of the K-shaped recovery, are working in the financial markets space. Markets never react well to the prospect of tax increases.

With the world long to the eyeballs on the global recovery trade across multiple asset classes, uncertainty in the Georgia election today could create a fertile breeding ground for some emotional pullbacks.

In breaking news, we have a reversal of a different kind. The New York Stock Exchange (NYSE) has just announced it is cancelling the decision to delist three Chinese telecommunications companies. The statement from NYSE’s parent Intercontinental Exchange reads as follows:

“NEW YORK, January 4, 2021 – In light of further consultation with relevant regulatory authorities in connection with Office of Foreign Assets Control FAQ 857, available here, the New York Stock Exchange LLC (“NYSE”) announced today that NYSE Regulation no longer intends to move forward with the delisting action in relation to the three issuers enumerated below (the “Issuers”) which was announced on December 31, 2020.”

The announcement has seen Chinese mainland stock markets immediately reverse their day’s losses thus far and move into positive territory. The statement reveals little detail about the reasons for the sudden volte-face. Still, it will boost China equity markets and likely spill over into regional ones, all of which were in a pre-Georgia risk reduction mode this morning. It also boosted the Chinese yuan, which proved spectacularly immune to Georgia concerns overnight, as it rallied strongly through 6.5000 versus the US dollar.

In oil markets overnight, OPEC+’s first monthly meeting to decide future oil production levels finished the day with no agreement between members. Both Brent and WTI retreated with talks set to continue into today. Russia appears keen to increase production, while Saudi Arabia and many other members are concerned about thrusting more product onto fragile markets in the short-term. Given the event risk from OPEC+, the Georgia runoffs, and the technical picture traced out last night, oil markets are more vulnerable than most to an aggressive short-term correction lower.

The data calendar in Asia today is strictly B-team. In Australia, ANZ Job Advertisements rose 9.20% in December, less than the previous month, but impressive nevertheless with distortions caused by Christmas holidays. Philippines Inflation YoY rose to 3.50%, with Covid-19 disruptions continuing to push food inflation higher. With the BSP reference rate set at 2.0%, Philippine real interest rates must be some of the world’s most negative. It should not get in the way of further appreciation by the currency in 2021 though. Further Indonesian-style “burden-sharing” whereby the central bank directly monetises government debt might though.

Singapore Retail Sales are likely to remain anaemic as the domestic consumption remains torpedoed by the Covid-19 recession. German Retail Sales are set to fall by 2.0% in November as Germany ratcheted up its Covid-19 lockdowns. Likely, though, today’s Georgia Senate elections will dominate markets, drowning out any data releases.

On the Covid-19 front, Japan is set to announce on Thursday, whether it will declare a state of emergency in parts of the country enabling more substantial Covid-19 restrictions. With the Arctic polar cap melting faster than Japan can make a decision, they could cast an eye to the UK, Europe and other parts of the world for lessons in vacillation. The desperation to have your cake and eat it by restricting some movement, while desperately trying to keep large parts of the economy open, has bitten Europe, Britain and North America in a big way. Britain announced overnight that it would re-enter a full national lockdown, Germany is extending restrictions, and the US speaks for itself. We’re all experts in hindsight but watching countries around the world make the same mistakes over and over again is a bit frustrating.

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