- Equity Markets on the Defensive
- Oil Looks to OPEC+ Meeting
- Georgia Senate Runoff the Key Event Risk
A volatile start to the year with yesterday seeing initial equity gains quickly reversed in the US session. This morning has seen a continuation of equities remaining on the defensive with further lockdown measures across the Eurozone looming large. Alongside this, there is also some investor angst ahead of the Georgia Senate runoff election, which will be the key risk event for today’s session, alongside the US ISM Manufacturing PMI.
Commodity: Across the oil complex, all eyes are on the OPEC+ meeting, which enters a second day after oil ministers failed to agree whether to ease the current production cuts in February by another 500kbpd or rollover existing cuts.
Those favouring are 500kbpd production hike is Russia, given that the country is comfortable with a $45-55/bbl price range, while Saudi Arabia prefer to refrain from raising oil production, given that the outlook for the first half of the year remains challenging amid the resurgence in virus cases leading to additional lockdown measures across the globe. The meeting is expected to resume from 1430GMT, although, for the latest updates, keep a close eye on Twitter using #OOTT.
Elsewhere, gold has held onto yesterday’s breakout gains, which posted its best daily performance since November 5th. For levels to be aware of, initial topside is seen at 1965 (COVID vaccine peak) with the September double-top just ahead at 1970-75. On the downside, support resides at 1930-35, while failure to hold puts 1900-05 in focus.
FX: Outperformance in the Antipodeans led by the Australian Dollar as ANZ Job Ads hit an 18-month high, improving the employment outlook, while a push higher in copper and iron ore futures also underpinned. The US Dollar eased back a touch with the psychological 90 handle capping topside, however, USD remains somewhat rangebound as the Euro falters at 1.23.
FX Intra-day Performance
Source: DailyFX, Refinitiv
Chart in focus: AUD/USD Techs Show Bearish RSI Divergence
Find out more on the Relative Strength Index with the 3 Trading Plans for RSI
Looking ahead: The aforementioned Georgia Senate Runoff is the main focus, below is a short primer of the event.
Politics looks set to dictate financial markets for the next 24-48 hours with the Georgia state runoff election. As I mentioned yesterday, this will be key for markets, given that this will impact how much of Biden’s policies can pass through Congress, thus being the last throw of the dice for a blue wave over the next 2 years.
State of Play: As things stand, Republicans currently hold 50 seats to the Democrats 48 seats, while 2 seats in Georgia were left unfilled after both candidates failed to reach 50% of the votes. According to recent polling data, support for Democrats look to have picked up with both candidates showing a slight lead of 1.8 and 2.2ppts. If Democrats win the runoff elections, the extra two seats would give them control of the Senate as a 50-50 tie would give VP-Elect Kamala Harris the deciding vote. However, Republicans need to win just one seat to maintain control of the Senate.
Timing of Results: Polls will close at 00:00GMT/1900ET, however, the timing of the results will largely be dependent as to how close the race is. As a reminder, Georgia did not declare a winner in the presidential election until several days after the election.
Blue Wave Trade: Ahead of the US election the consensus view of a blue wave trade had been a weaker USD, higher rates and equities. However, while the view remains that the USD could slide further, it is worth keeping in mind that the USD is already down circa 5% since the election. Perhaps the clearest trade would be for US Treasuries to weaken with yields tilted for a break of 1%. On the equity front, however, there is a possibility of an initial move lower in US tech stocks, given that a blue wave would likely see a repricing on higher corporate tax and tech regulation risks. That said, the event has become much more binary amid the recent shift in favour of Democrats.
DEMOCRATS TIGHTEN GAP IN RACE FOR GEORGIA SENATE SEATS