Written by: Craig Erlam | OANDA
We're seeing caution on the US open on Wednesday, as the final votes are counted in Georgia and the Democrats head for an unlikely double win.
The victory means the Senate is split, handing an effective majority to the Democrats who now control all three chambers. While that doesn't mean life will now be easy for incoming President Joe Biden, it will certainly be far less prohibitive and enable the party to deliver on more of their campaign promises, albeit not without disruption along the way.
Stock markets are holding up fairly well considering this was seen as the least desirable outcome, given Biden's promises on tax and regulation, in particular, but a big old stimulus may sweeten the deal. The Nasdaq isn't having its finest start to the year, which isn't surprising, but under the grand scheme of things, it's doing fine.
What was a little surprising earlier in the session was that, despite the US 10-year yield rising above 1% in anticipation of another sizeable spending package, the dollar continued to struggle and gold was holding its ground. Although that has since shifted, with the dollar now slightly higher on the day and gold off almost one percent.
All things considered, this week is shaping up to be a big win for the Democrats, bringing an end to an election they should have done even better in. There'll likely be more drama as President Trump refuses to accept defeat, along with a surprising number of allies in the House and Senate, but that shouldn't have an bearing on events two weeks today.
Attention will likely remain firmly on the US this week, with the Fed minutes this evening the next point of interest. The central bank played the waiting game in December and will be very pleased that Congress eventually decided to assist with some of the heavy lifting, although I'm sure it will be hoping more help will soon be on the way. The situation in the country continues to deteriorate though so it may still be a matter of when, rather than if.
The jobs report on Friday will naturally be another key area of interest, although with a stimulus package passed before the end of the year, it may not quite pack the same punch. Less than 100,000 jobs are expected to have been added - although today's ADP suggests that may be very optimistic - while the unemployment rate is expected to tick higher, something we should see more off in the coming months.
Oil stabilizes after Saudi surprise
The outcome of the OPEC+ meeting was a welcome surprise for the oil markets, with Russia and Kazakhstan sharing a small increase in production of 75,000 but Saudi Arabia committing to a one million barrel per day cut. So not only will there be no effective increase but the outcome represents a substantial cut.
That saw oil prices rally strongly on Tuesday, which initially carried over into today as well, before once again paring back. With WTI still hanging around $50, where it continues to see significant resistance, I do wonder whether this is an asset now primed for a correction of some kind.
It's been on a remarkable run and there's now a lot of good news heavily priced in. Given the challenges facing the economy in the coming weeks and months, near-term downside risks may soon mount.
Gold gives up early gains
Gold prices have seen some interesting swings on Wednesday. The yellow metal was once again rallying earlier in the session, even as US yields were on the rise and the 10-year went above 1%. A softer US dollar was likely the culprit but with US stocks softer at the time, it was interesting to see the greenback remain out of favour.
Both changed course as we neared the open on Wall Street though and the dollar now finds itself up on the day, with gold just above $1,930 after dropping three quarters of one percent suddenly on seemingly very little news. Perhaps the reality of the situation just finally caught up with it after a strong start to the year, with some profit taking exacerbating the move.
A blue wave does represent a downside risk for gold given what a major stimulus package could mean for inflation and US interest rates, hence the 10-year moving back above 1%. It may be fine margins in the Senate but it's still a majority and one the Democrats need.
Bitcoin rebounds a measly 25%
Bitcoin made new highs again today, this time moving above $36,000, only two days after slipping close to $29,000. A roughly 25% rebound when very little has happened is just what happens in bitcoin and I don't think anyone would be surprised to see the price above $40,000 by the end of the week, even $50,000 by the end of the month. Where does it end?
Related: A Blue Wave Will Require Investors To Re-Evaluate Their Assumptions for 2021