Overnight, all three major indexes of Wall Street were up, of which the Dow rose to a new closing high, the S&P 500 gained around 1.4%, and the Nasdaq jumped almost 2%. Shares in Asian markets generally closed up on Thursday, following the Wall Street record highs overnight. The European Stocks also climbed a bit in early trading session, reflecting bullish outlook of those investment markets.
Investors expected that the new US government may consider to raise tax to solve part of the budget deficit due to such massive fiscal support, that on the other hand may weaken the recovery of the US economy and the effectiveness of the current monetary policies. ZFX analyst Jacob Leung said that it would be a “trade-off”. If Biden’s tax policy is implemented, the dollar’s outlook will be a bit different. And in turn, the whole market sentiment may not be that bullish.
Recently, traders are concerning about the rise of the bond yields, somehow reflecting the inflation expectations. The benchmark 10-year US Treasury yield broke 1% last week, touching a high of 1.18% on Tuesday, that causing uncertainty to the market. Despite Fed officials reminded that the monetary policy, likely saying QE, will remain supportive in the foreseeable future, the 10-year yield is still trading at 1% above.
Stocks in Asia-Pacific markets were generally good, following the momentum last week despite currently the slight correction of the US futures. The dollar index is trading at 90.4 level, rallying from the low of 89.21. European stocks are expected to be a mixed opening on Monday, based on a bit cautious sentiment.
The risk-on mode is quite clear as investment market is expecting the wins of Democrats in Georgia. Analysts generally believe that a Democrat-controlled Senate would benefit the economy overall, so that traders are betting on those riskier assets. The yield of the benchmark 10-year US Treasury climbed over 1%, the first time since the global pandemic started in the March of last year.
Bitcoin has made another record, breaking $30000 mark over the weekend, touching $34000 level. It has jumped over 300% in 2020, which is another crazy move since 2017. While many investors believe that such move is abnormal, may be the biggest market bubble so far, some of them still consider that bitcoin is a market chance.
Obviously, investors are betting on the strong fiscal and continuous monetary support from the US while all the uncertainties around have been lowered, pushing the dollar index down to 90 level below.
ZFX analyst Jacob Leung said that weak dollar and higher commodity prices are the typical outcomes from those stimulus measures in the US, at least according to the experiences in 2009 to 2011. We should have a look at Bitcoin, that has been pushed up to $26000-27000 level, reflecting the hedging needs and the distrust of those main central banks in the world.
In the FX market, Sterling jumped to 1.35 level against dollar as investors bet on the Brexit deal, that can avoid a market chaos next year of the UK’s economy. The euro also strengthened to 1.22 level. On the other hand, the safe-haven dollar is weakened due to the general bullish outlook of the global economy.
Overall, the risk appetite from the $900 billion of the coronavirus stimulus bill was overshadowed. In other words, it may be a typical “buy the rumor sell the news” as such “bullish” has been “priced in”. The dollar, which is deemed as the only “relative” safe haven, may go further stronger if the uncertainties remain.