Written Commentary
STOCK INDECIES FUTURES
Global equity markets overnight were higher with gains ranging from 0.5% to as high as 1.4% in Germany. Clearly the markets are cheered by the prospect of a-final-end to the exit and from another step toward a US stimulus agreement. The US markets should derive fresh speculative buying from a report late last week that online US retail sales from the October 11th to December 26th holiday shopping period increased by 3% over the prior year. The markets might also derive a measure of support from a large $10 billion stock buyback by AliBaba.
CURRENCY FUTURES
While the dollar has not forged a fresh lower low for the move it did violate the 90.00 level temporarily in a fashion that leaves the bear camp hopeful. On the other hand, the bull camp should be disheartened by the markets lack of definitive downward motion in the face of 2 major events overnight that clearly justified the removal of additional flight to quality investments/trades. We suspect the dollar will catch a temporary lift from this morning’s US Dallas Fed Manufacturing Business Index, and we think the Index will be held up by support at 89.89.
INTEREST RATE MARKET FUTURES
With a risk on mentality in place to start the new trading week, the path of least resistance is still pointing down in bond and notes. While there would appear to be more negotiations before a fully agreed-upon stimulus package is a reality, a shift toward larger direct checks is a fresh underpin for the US economy and a fresh negative for Treasuries. In fact, some economists suggest that additional stimulus checks will help extend the US recovery which by many statistical measures has decelerated over the last 2 months. There would also appear to be flight-to-quality selling in bonds and notes off the looming exit deal but also from traders selling to balance positions ahead of year end. One can rationalize current price levels (near a downside breakout of post Covid-19 lockdown panic pricing) because of the global dissemination of vaccines and now more specifically because of the potential for direct stimulus checks that could bring the US economy through the final stresses of the pandemic. While not a major driving force on prices today the Dallas Fed manufacturing business index could provide a measure of temporary support before the attention in the marketplace shifts to a series of 3 and 6-month bill auctions and then to 2 and 5-Year Note actions at mid-session.
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