Markets Bet on Deals; Risk On Dominates

Market Drivers December 17, 2020

  • Dollar down across the board
  • Equities higher in post Powell bump
  • Nikkei 0.18% Dax 0.62%
  • UST 10Y 0.92
  • Oil $48
  • Gold $1873/oz.
  • BTCUSD $22721/oz.

Asia and the EU

  • No Data

North America Open

  • GBP BOE 7:00
  • USD Weekly Jobless 8:30
  • USD Building Permits 8:30

The dollar remained weak in the post-Powell reaction while equities were higher in Asia.

Chair Powell was as dovish as ever, noting that inflation was not a threat, that large fiscal deficits posed no problem given the low interest rates and that rates themselves were likely to remain near the zero bound for quite a long time.

Overall, it was a performance designed to reassure the markets that the Fed stood ready to support any and all expansion of the fiscal space as it maintained a policy of ultra-accomodation in order to help revive the economy.

Market participants continue to bet on some form of US stimulus before Congress adjourns for the holiday break and all indications suggest that lawmakers will strike a compromise deal albeit a much more modest one than originally planned. At this point much of the upside is factored into the price of equities and any news of the deal should have only modest upside potential. On the other hand if the lawmakers fail to reach a compromise the negative shock is likely to be far more severe. Yesterday’s Retail Sales data showed clearly that the US consumer is slowing markedly and even on-line spending was far more modest than anticipated.

All of this suggests that the US economy may be tipping into a recession and with much of brick and mortar businesses closed in the coming weeks due to COVID lockdowns the demand picture will only grow worse unless fiscal stimulus helps offset the contraction.

In FX the dollar was weaker across the board with cable especially strong as it tested the 1.3600 figure. Brexit talks are ongoing with Barnier noting that talks are showing good progress. Here just as in equities the positive scenario is foregone conclusion and again the asymmetrical risk is to the downside, but for now momentum reign supreme and pound bulls are firmly in control.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Boris Schlossberg

Mr. Schlossberg is a regular contributor to CNBC's Squawk Box and a commentator for CNBC Asia and CNBC Europe. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Mr. Schlossberg has written for SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is the author of Technical Analysis of the Currency Market and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game, both of which are published by Wiley

Read Boris' Bio