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Muted reaction to $1.9T stimulus

15 January 2021

Asian stocks are mixed while US futures are edging lower, even after US President-elect Joe Biden unveiled his US$1.9 trillion fiscal stimulus plan. There appears to be a some “sell-the-news” price action in equities, given that a lot of the optimism surrounding another injection of US fiscal stimulus had already been priced in ahead of the keenly-awaited announcement.

Markets are also understandably apprehensive following Biden’s foreboding remarks in addressing his proposal’s costs. A seemingly exhausted stock market reacted to the threat of higher taxes, and the intended hike in the minimum wage, by taking some risk off the table and booking in some profits.

Promise of more fiscal stimulus may come with caveats

There’s already chatter that the incoming Biden administration may not stop at just US$1.9 trillion and could roll out more fiscal stimulus. Such expectations have in recent past buoyed risk assets.

However, if the incoming fiscal support is accompanied by more risk-sentiment dampeners, such as the threat of heightened regulations, that may not have the intended booster effect on equities.

Pandemic woes still evident

Investors will have plenty to digest over the long holiday weekend for US markets. Besides the promise of more fiscal stimulus, market participants have to reconcile the still-heady heights in stock markets with the sobering realities amid the pandemic. Covid-19 cases are still raging throughout the US and Europe, and the vaccine’s rollout needing time to have its intended effect on the real economy.

In the meantime, the economy’s dire need for more support couldn’t be starker. Thursday’s weekly initial jobless claims rose back towards the one million mark to post its highest figure since August. More signs of economic angst may also be unveiled later today. Retail sales may show zero growth in December, while consumer confidence is expected to have dipped this month.

Gold climbs as Powell hushes tapering talk

Spot Gold got a slight lift as US 10-year yields dipped to the 1.11 percent level, after Fed Chair Jerome Powell poured cold water on talks surrounding a potential pullback in the central bank’s bond-buying programme. Although the 10-year yields remain significantly lower than pre-pandemic levels, they have stayed stubbornly above the psychologically-important one percent mark since last week.

The recent steepening of the yield curve indicates that markets are still optimistic about the US economic outlook and the inflation outlook. And with the Fed Chair pledging to provide ample warning time before any such tapering, so as to avoid a repeat of the infamous ‘taper tantrum’ of 2013, Gold bulls can take heart from the continued central bank support that should limit the precious metal’s downside for a while more.



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