The Two Policy Initiatives From Biden That Need to Come True in Order for Rally To Continue

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Equities green risk FX mixed
UK CPI muted
Nikkei -0.28% Dax 0.53%
UST 10Y 1.09
Oil $53.50
Gold $1856/oz.
BTCUSD $34501/oz.

Asia and the EU

CAD CPI 8:30
CAD BOC 10:00

Markets were mildly bid in quiet trading ahead of President-elect Joe Biden’s inauguration ceremony today.

The overall tone remains risk-on with traders hoping that the first one hundred days of Biden’s Presidency will yield tangible results on both the vaccination and stimulus fronts. President has his job cut out for him as the outgoing Trump administration has come woefully short of the vaccination goals and the whole program will require massive federal support and coordination in order to ensure rapid deployment.

Biden has set the target of 100 million vaccinations in the first hundred days which would be a massive achievement and go a long way towards mitigating the COVID risk and allow for much greater degree of commerce in the US economy. At the same time the Administration has proposed a 1.9 trillion stimulus package which faces resistance from the Republicans in the Senate who have suddenly found a new appreciation of balanced budgets.

The markets are trading on the assumption that both the vaccination drive and the stimulus package are a done deal. If Mr. Biden can accomplish his goals the buoyant mood should push equity prices higher, but if the two initiatives run into roadblocks there is a very real chance of 5-10% correction in equities especially if activity remains in a quasi-lockdown phase with consumers remaining in their homes and many of the small businesses facing bankruptcy risk.

The calendar today is barren in the US, but in Canada the market will hear from BOC as it announces its rate decision. According to our colleague Kathy Lien, “We see only a 30% chance of a micro cut. Instead, the BoC is more likely to reiterate that low rates are here to stay. With vaccine shortages, we expect the central bank to err on the side of caution, warning about ongoing uncertainty and keeping the door open to easing. If the BoC cuts, USD/CAD will spike to 1.28. If they leave rates steady like we expect, CAD could rally in disappointment.”

Boris Schlossberg
Managing Director

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