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Another record high for US stocks?


4 December 2020

Risk assets are looking to end the week, and the year, on a high. US stock futures are edging into the green, indicating the S&P 500 and the Nasdaq 100 could yet claim one more new record high before the weekend. However, Asian stocks are now mixed, with Japan’s Nikkei 225 and China’s stock benchmarks dipping into the red.

Risk appetite is being supported by the imminent rollout of the Covid-19 vaccine. The UK and Russia are expected to roll out their respective vaccines next week, while the US Food and Drug Administration are expected to approve Pfizer’s vaccine on 10 December. As the global population embarks on its journey towards Covid-19 immunity, that should also help the world economy get back on its feet.

US jobs report to show waning recovery


While the health response to the pandemic is taking positive strides, major economies such as the US and EU are still limping. Although those on Wall Street might be having the time of their lives, with equity gauges posting new record highs, many on Main Street can only hobble along due to the pandemic’s impact on the real economy. Despite the euphoria seen in global financial markets, today’s US non-farm payrolls report may serve as yet another sobering reminder of the fact.

The November US jobs print is expected to register a sub-500k reading, which would be its lowest since US states began easing lockdown measures in April. The recovery is clearly petering out, as the number of Americans heading back to work thins, with the unemployment rate still about double that of pre-pandemic levels.

The US economy clearly needs more fiscal support, and the sooner the better. Markets are still clinging on to the hope that a fresh round of US fiscal stimulus is in the making, as the voices from within Congress continue singing that same hopeful refrain, propping up the elation in equity markets.

Enough reasons to remain risk-on


While we wait, risk assets have enough going for them for the time being. Besides positive vaccine developments that promise to aid the global economic recovery, major central banks are not shying away from rolling out more monetary policy support for their respective economies, with potentially more to be announced by the Fed and ECB this month.

Brent flirts with $50 on OPEC+ deal


Oil markets are also finding cause for celebration, with OPEC+ agreeing to taper its output cuts starting January, as opposed to restoring 1.9 million barrels per day (bpd) as initially planned. The 500,000 bpd that’s due to be added next month is a more digestible bite-sized chunk for the global economy, which is still trying to get back on its feet since the pandemic. The Covid-19 vaccine is also expected to help the world expand its capacity to soak up the additional incoming supply, potentially helped further along by more fiscal stimulus for the likes of the US and the EU.

However, the vaccine and fiscal support may be less effective in helping consumers worldwide overcome the mental scars of Covid-19, which could prove to be a stubborn obstacle in restoring global demand truly to pre-pandemic levels. Also, with virus curbing measures either looming or being extended, from the state of California to Germany, the continued upward trajectory for Oil prices isn’t yet fully assured.

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