MARKETS
US stocks climbed to records Monday after President Trump signed a COVID-19 aid bill forestalling a government shutdown and ending uncertainty about the spending package's rollout. Indeed, the EIP and unemployment checks provide that immediate key consumption bridge through Q1 until the vaccines become more widely distributed.
The stipends will arrive quickly and are spent rapidly, providing the US economy with immediate retail sales spending bonanza boost. This splurge could be multiplied X 3 if the Senate agrees to rubber-stamp support for increased COVID checks to $2000 from $600.
Oil
Markets feel very rangy into the New Year but should find support today from broader risk markets as stocks are soaring on the prospects of larger stimulus checks. However, for oil markets, gains could be limited due to the new COVID variant and OPEC meeting overhangs.
After stalling out at Brent $52 as the stimulus relief rally gave way to the new variant virus reality which might pose significantly more downside risk due to mobility restrictions than current demand tailwinds for the oil, which sees January oil demand currently on shaky footings.
Oil prices then fell after Russian Deputy Prime Minister Alexander Novak hinted that should oil demand recover next year faster than currently expected, member states could adjust the terms of the current OPEC+ production agreement.
After watering down the original January production plan to 500,000 bpd from 2 million bpd, the surging oil prices suggest smaller states would be eager to bring more barrels back to the market. The question is how much and how quickly and by what capacity the cartel will turn on the taps.
But one thing is certain: OPEC+ needs to ensure its production capacity meets demand rather than leave it for US shale—suggesting all production decisions will be guided by price.
FOREX
Despite tempered volumes, the US dollar reacts negatively through the usual EURUSD higher risk-on channels like rallying global stocks. However, traders look more interested in risk reduction than adding, so activity could be rangy with EURUSD 1.2250, for example, providing good resistance. In contrast, 1.2200 looks like solid support overnight.
GBP
Following the colossal rejection of 1.3600 in GBP post-Brexit deal I would assume most of the fast money longs have taken profit and now leaving the Pound prone to its economic volitions and hampered by demand for EURGBP over the near term. Despite a solid performance versus the USD in 2020, GBP has broadly underperformed its G10 peers. I think the underperformance is justified and is likely to continue in 2021 To a large extent, the upside in GBPUSD reflects both broad-based USD weakness and anticipation of real money inflows into the UK in the New Year.
EUR
Everyone wants to own euros into 2021 as the currency stands to get support from favourable valuations. Investors may look to tap into European equities, for example, which are cheap and under-owned. Extensive fiscal and monetary policy supports in the US that seem set to continue, spilling over to the rest of the world in the form of wider twin deficits, should fuel a weaker dollar by encouraging US corporates and investors to pursue enhanced returns abroad. And then there is the compression of risk premium in Europe driven by the ECB's PEPP program, which was extended and kept peripheral spreads tight.
GOLD
Gold traders have their eye on $1900 for year-end, but the yellow metal will need a bit of help from the USD to get over that finishing line. However, if the Senate agree to an increase the amount per person to $2000, that would cost about $400bn more, bringing the overall cost well over the $1trn mark that might bring music to gold investor's ears as bigger deficits are bad for the US dollar and good for gold.