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RIDING ON THE REFLATION TRAIN (0802 GMT)
Markets have firmly climbed on the reflation trade bandwagon
with the benchmark 10-year U.S. Treasury yield popping to a new
10-month high at 1.10%. The widely watched spread between the
10- and 2-year yield widened to a July 2017 high at 97 bps.
Investors are focusing on the prospects of more stimulus
from the incoming Biden administration after the Democrats won
control of the Senate this week.
While rising bond yields translate directly into higher
borrowing costs potentially hurting a global economy struggling
to shake off the ravages of the coronavirus pandemic, stock
markets are conveniently ignoring that fact for now.
World stocks are poised to close in the black in the first
week of 2021. Benchmark U.S. indices closed more than 1% up
apiece overnight while European stock futures are signalling a
higher start.
More evidence of the damage to the global economy will be
out later today with monthly jobs data expected to show the U.S.
economy likely created the fewest jobs in seven months.
The secular rise in U.S. Treasury yields across the board
reverberated across broader markets, spurring traders to unwind
their long bets on the euro with the euro/dollar nursing losses
after a 0.5% drop overnight. Even the Chinese yuan, which has
been on a rampage this week, steadied.
Elsewhere, speculator’s dream, Bitcoin took a breather after
smashing through $40,000 for the first time. The world’s most
popular digital currency has doubled its value in less than a
month after crossing the $20,000 milestone on Dec. 16.
(Saikat Chatterjee)
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BITCOIN OR REFLATION TRADE? (0737 GMT)
The storming of the Capitol exposed to the world how divided
the U.S. society is and depending on whether one believes the
country can be healed, comes different investment conclusions,
writes Rabobank strategist Michael Every this morning.
"Either buy into the reflation trade on the presumption that
the new administration will at least attempt to use economic
stimulus to bridge the political divide; or expect the worse and
just buy Bitcoin", he argues in a somewhat provocative morning
note.
So far in 2021, both options, reflation and cryptomania,
seem to be walking hand and hand amid the bulls.
Bitcoin has reached a record $40,000 overnight and the U.S.
10 year Treasury yield has shot above 1.08%, to its highest
since the COVID-19 crash in March.
So far this year, as you can see below, both are doing quite
well:
(Julien Ponthus)
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EUROPE SHINES IN 2021'S FIRST WEEK OF TRADING (0636 GMT)
European shares are seen opening well into positive
territory this morning and set to outperform their U.S. rivals
for the first week of trading of 2021.
The pan-European STOXX 600 is currently on course for weekly
gains of about 2.4% versus 1.3% for the S&P 500.
It must be said however that the latter is enjoying fresh
record highs while Europe has still some way to go to reclaim
the highs last touched in February 2020.
Talking about new records, Asian stocks have rose to new
highs overnight with Japan's Nikkei hitting a three-decade peak.
Despite the coronavirus pandemic and the U.S. political
crisis, investors are still betting that 2021 will be a year of
economic rebound.
(Julien Ponthus)
*****