Modest risk on
IFO bears to teh upside
Nikkei 2.50% Dax 0.85%
UST 10Y 0.85
Asia and the EU
EUR IFO 90
The formal announcement that the GSA will release transition funds to the incoming Biden administration helped calm the markets and caused a small rally in Asian and early European trade as the risk of a political standoff receded.
Faced with contempt of Congress and possible jail time the GSA Administrator Emily Murphy formally released the transition funds to President-elect Biden effectively conceding that he unequivocally won the 2020 election. Trump’s continued attempts at subverting the democratic norms of the nation failed once again yesterday when Michigan certified the results and the GSA action, as grudging as it was in effect a tacit admission that he lost the Presidency.
Although the markets have long priced in Biden win and have been rallying ever since last night’s action assured that there will not be any Constitutional standoff and that a peaceful transition of power – something that until this year was essentially assumed in the more than 200-year history of this nation – will take place.
Biden starts behind in his planning due to these delays, but his 40-year experience in the power corridors of Washington DC has served him well as he has displayed extraordinary sang froid throughout this process and his calm has no doubt helped quell investor concerns.
Politically the focus remains on the state of Georgia where a dual run-off election could flip the lever of power to Democrats in the Senate, setting up for a much bigger fiscal package than is currently possible. Given the slowdown in the economy and the likelihood of a disappointing Christmas season, the fiscal boost will be very much needed early next year, and market action so far suggests that investors expect it.
In FX the risk-on mood helped to keep the dollar lower with EURUSD rising by more than 40 pips as the IFO report came in slightly better than expected at 90 vs. 87. IFO economist Klau Wohlrabe noted that so far German industry has been able to withstand the downturn. The EURUSD has displayed surprising resilience in the wake of so much negative economic news and the price action suggests that is risk on flow continue into the end of the year the pair could make another run at 1.2000 despite so much pessimism amongst market analysts.