Wednesday, 20 January 2021 / Published in GEOPOLITICAL

Can the rollout of a COVID vaccine be a sell the news event? Probably not, because central banks will continue to offer liquidity support for the foreseeable future. Even after the pandemic ends, the liquidity created will remain in the system.

We know economies will experience a burst of growth when the COVID pandemic ends. Partially because of pent-up demand, Partially due to an increase in productivity (gained during the pandemic), and lastly growth due to the return of sectors like hospitality.

However, with 93% of global economies struggling and markets at all-time highs, the question is, will the return to normality be a sell the news event?

The answer is we don’t know, however as we have said several times, higher equity valuations are also a product of the liquidity created by central banks. But please note this liquidity will not be taken out of the market. Mr Powel learned this the hard way, when a simple mention of unwinding the Fed’s balance sheet sent markets crashing back in late 2019.

As such, while we are vigilant of a sell the news COVID vaccine event, at the same time we find it difficult to see such a scenario. One the one hand liquidity support will continue for the foreseeable future, and even after the crisis ends, this liquidity will never be taken out of the market.

Having said that, a correction is always possible for a variety of reasons, simply because markets correct from time to time.

Wednesday, 20 January 2021 / Published in GEOPOLITICAL

China’s equity indices advance near all-time highs after the economy was reported to have grown 6.5% in the fourth quarter of 2020 compared to a year ago, beating expectations of 6.1%.

The Chinese economy was surprisingly resilient during 2020, expanding by 2.3% while the rest of the world has been struggling by an ongoing financial recession caused by a renewed pandemic outbreak.

The higher-than-expected GDP growth has been primarily driven by China’s rapid containment of the Covid-19 virus, the massive fiscal and monetary stimulus plans, the resilient supply chains, the growth in retail consumption, and stronger demand for Chinese exports.

China has had a remarkable V-shaped recovery last year, returning to growth after a 7% contraction in the first quarter propelled from the lockdowns in the economic activity to contain the virus.

Furthermore, the Chinese Yuan appreciated to 6.5 against the dollar, its highest level since 2018, supported mainly by the trade surplus and the rising exports thanks to surging demand for face masks and other goods linked to the Covid-19 crisis.

Friday, 15 January 2021 / Published in GEOPOLITICAL

Global stock markets were on hold on Friday morning, digesting the details of the proposed $1.9T US stimulus plan by President-elect Joe Biden and ahead of President Trump’s potential impeachment trial.

Joe Biden’s $1.9 trillion pandemic-relief package:

President-elect Joe Biden announced the details of a $1.9 trillion pandemic-relief package on Thursday night. The proposal, called the “American Rescue Plan” would be the first of two major spending initiatives Biden will seek in the first few months of his presidency in 2021.

The second bill, expected in February, will deal with Biden’s longer-term goals of creating jobs, reforming infrastructure, combating climate change, and advancing racial equity.

The “American Rescue Plan” was designed to aid additional support into pandemic-damaged local businesses and US families until the Covid-19 vaccine is widely available. Some of the major proposals of the bill include direct payment of $1,400 to most Americans, bringing the total relief to $2,000, including December’s $600 payments together with an increase of the per-week unemployment benefit to $400 until September and others.

Political leaders in Washington from both Democratic and Republican parties offered initial support for Biden’s stimulus packages, showing a collaborative stance after the deadly riots in Capitol Hill last week and ahead of President Trump’s potential impeachment trial.

Trump’s Impeachment:

President Donald Trump became the first US president ever to be impeached twice, after the U.S. House of Representatives passed a single article of impeachment on Wednesday, accusing him of high crimes and misdemeanours for inciting an insurrection in the U.S. Capitol last week while Congress counted Biden’s electoral win.

The second impeachment trial for President Donald Trump will likely pull into President-elect Joe Biden’s term, which starts on January 20, 2021. A possible Senate vote to convict Trump would prevent him from becoming president again in 2025.

Market reaction:

All three major US stock indices ended Thursday’s session slightly lower but near their recent all-time highs, as investors are concerned over the cost of the relief package and the possible taxes on tech names, despite the prospects for an economic recovery.

The benchmark 10-year Treasury yield rose to near 1.12% while the DXY-dollar index against major peers climbed at 90.50 on Thursday, gaining support from the higher inflation expectations and massive U.S. fiscal stimulus.

However, their recent bounce in Yields and greenback lost some steam after Federal Reserve chairman Jerome Powell said the U.S. central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term.