Investor jitters over UK Covid mutation boosts US dollar
Asia managed to dodge the worst of the risk-off move overnight, heading home before the panic set in during European hours. As countries queued up to close borders with Britain over its mutated strain of Covid-19, investors hit the panic button. Equity markets were slammed, along with energy and precious metals as investors flocked to the safety of the US dollar and US treasuries.
US markets started off in much the same tone. However, the emergence of the US stimulus bill and government funding bills proved just too juicy a morsel for the dip-buying FOMO herd to ignore. By the end of the session, US equities had recovered most of their losses, as had precious metals and currency markets. The charts show massive ranges across almost every asset class, but very little directional substance.
If nothing else, it reinforces the notion that in a zero per cent world flooded with free central bank money, back-stopping even the dumbest of investment decisions, asset price inflation continues unchallenged. Any dip is one to buy; until it isn’t. That is unlikely to come anytime soon in 2021. From a short-term perspective, quite a few late to the party speculative positions in markets such as precious metal and energy, have been flushed out. That will be positive for their underlying upward trends.
Asian markets appear to be playing a little bit of catch-up today. The US dollar has strengthened, notably against the dollars down under, while equities and energy are modestly negative, and precious metals are slightly higher. Asia’s investors have probably looked at the whipsaw price action overnight and chosen discretion over valour and taken some risk of the board ahead of the holidays. That is a sensible move with empty data calendars, lots of headline risk and deteriorating liquidity into the new year.
Reuters is reporting that Apple plans to release a self-driving electric car in 2024. I thought this project was dead and buried, as Apple concentrates on selling expensive services and computers. Markets though, will look at Apple and tech and go iWant, for sure. Nasdaq futures are higher, and I have no doubt the S&P will receive iLove from the story as well. Tesla’s uninspiring index debut yesterday should be quickly unwound.
The data calendar is bare in Asia today. Australia recorded a massive 7.0% jump in November Retail Sales after Victorians were released from their Covid-19 lockdown and went shopping. Even stripping out Victoria though, the number was impressive, confirming Australia’s almost China-like recovery. In Sydney, the local outbreak’s Covid-19 cases have fallen today, which should calm investors frayed nerves.
Both the United Kingdom and the United States release Final Q3 GDP this afternoon. Both will show impressive rebounds, but quite frankly, are old news in the context of 2020. A lot has happened in both countries since. US Existing Home Sales will be of passing interest, but the focus will really be on the US data dump tomorrow. Personal Income and Expenditure will remain in negative territory, for apparent reasons. US Initial Jobless Claims may spike well over 900,000, although the Fed-watched Core PCE Price Index will remain positive at 1.50%, and Consumer Sentiment for December is forecast to rise to 81.5.
Thankfully, with the US Senate and US president due to pass and sign the 5,600-page omnibus stimulus and funding bill into law today, any fallout from tomorrow’s US data-dump will be limited. Markets will be at the mercy of headline-driven risk as liquidity dries up into the holidays. But as last night showed, no matter how hard markets try to silence the FOMO-lambs, they cannot be silenced.