US futures are marginally lower ahead of the open on Tuesday after a difficult start to the year.
There was some positive momentum coming from Asia and Europe but that quickly petered out on Wall Street. Last year ended on such a high that I wonder whether we're just seeing some profit taking in an uncomfortable period for the global economy.
Covid is wreaking havoc once again and countries are imposing harsher restrictions, with new variants of the virus spreading far faster than what we've seen previously. The UK went back into full lockdown today, while Germany extended its lockdown until the end of the month. With other countries seeing similar trends, restrictions are only heading in one direction. It was always going to be a tough start to the year, investor sentiment will be put to the test.
Adding to the cautious start to the year in the US is today's Senate run-off elections in Georgia, with the result having massive implications for the country over the coming years. The Republican's only need one seat to retain their majority with a double Democrat victory giving them a de-facto majority, given the casting vote of the vice President.
Given the ambitious agenda of the incoming administration, there's a lot hanging on the vote, the outcome of which will become clear over the coming days. From a markets perspective, the nervousness we're seeing may reflect the perceived improved chances of the Democrats in the two seats, with a clean sweep meaning higher taxes and more regulation.
Of course, it could also mean another substantial spending package which has little chance of getting through a Republican controlled Senate. Should the Democrats pull off the, once considered, unlikely double win, stock markets may come under some pressure initially, with the dollar seeing some reprieve.
Oil higher as OPEC+ work towards agreement
Oil prices are climbing again on Tuesday, having sharply reversed course on Monday as WTI came within a whisker of $50 a barrel, a level it hasn't breached since early in the pandemic. It's a sign how far things have come that rather than seeing prices plunging as numerous countries go back into lockdown, they're stable at very reasonable levels.
Of course, the vaccines have a lot to do with that, with traders banking on a strong recovery on the back of enormous amounts of fiscal support over the last year, which will continue for a few more months yet. Pent up demand is expected to turbo charge the economic recovery, which should bode well for fuel demand and allow OPEC+ to continue to ease production cuts.
As ever though, timing is crucial and the group remains at odds about what to do in February. Plans to hike production by 500,000 barrels in February have been put in doubt by new lockdowns but Russia is reportedly keen to push ahead and preserve market share. Saudi Arabia and others are more cautious, instead keen on maintaining higher prices. The only outcome that could serious threaten prices is a total collapse but that's extremely unlikely, with another compromise likely to keep all sides happy for now.
Gold eyes set on $2,000
After looking like a wounded animal for much of the final months of the year, gold has started 2021 in fine fashion, bursting through $1,900 on Monday and pushing $1,950 once again today. A softer dollar continues to be supportive for the yellow metal, making the outcome of the Georgia run-off all the more interesting.
The best outcome for gold may be Republicans keeping hold of one seat, reducing the prospects of more fiscal stimulus and leaving the Fed to do the heavy lifting. Either way, a run towards $2,000 looks on the cards, regardless of any short-term setbacks.
The main thing standing in the way now is the early November highs which happens to roughly coincide with the 61.8% retracement of the move from the summer highs to late November lows. A move above here could clear the way for a move towards that major psychological level.
Bitcoin has JPM onside
The only thing bitcoin enthusiasts will love more than a forecast calling for a quadrupling of the bitcoin price in the coming years is it coming from JP Morgan. CEO Jamie Dimon once rubbed the community up the wrong way calling bitcoin a fraud, among other things, but it seems his employees aren't on the same page.
Dimon's belief's may turn out to be well founded, with bitcoin being nothing more than a speculative instrument at the moment. The price action over the last year and volatility it invites is evidence of that. But as we've seen for months, that doesn't mean it can't make extraordinary moves in the interim and those moves recently have primarily been to the upside.
It's had a bit of a setback at the start of 2021 but in the grand scheme of things, that's nothing. It broke above $20,000 for the first time ever less than a month ago and, predictably, it's been a wild ride since. That ride isn't over and it could climb much further yet. Of course, it will end horribly for some when it collapses in flames but that's the risk you take with something as highly speculative as bitcoin.