Strong Tech Earnings As President Biden Is Sworn In
US stocks roared higher on strong tech earnings and as President Biden was sworn in and is widely expected to unleash several well telegraphed executive orders. Risk appetite remains in place as President Biden has clearly signaled, he will not have a completely progressive agenda. A new era is beginning and investors pile back into equities thanks to assurances from both Treasury Secretary nominee Yellen and Fed Chair Powell that the US economy needs more help. Yellen’s call for “big” action and Powell’s consistent dovishness means the punchbowl of stimulus is only going to grow in President Biden’s first year.
The first big tech earnings report from Netflix impressed. The streaming giant added 8.5 million subscribers, well above the analysts’ expectations of 6 million. The pandemic helped drive their paid subscriber count to over 200 million, doubling what they achieved in 2017. Netflix missed on EPS, revenue came in line with analysts’ forecasts, but shares focused on the news they are considering stock buybacks.
Morgan Stanley wrapped up the major banks earnings results and boy, did they deliver. Morgan Stanley provided record revenue in 2020 and posted outstanding trading results across the board. Everything looked great from equity and fixed-income trading, investment banking, and wealth management.
It seems vaccine delays, new infections, re-infection concerns, and extended lockdowns, are only raising the prospects for more global monetary and fiscal stimulus. Across Europe and the US vaccine delays are raising concerns many individuals won’t get their second dose as initially anticipated and that could lead to many not developing full immunity. Delaying second doses is a risky gamble that could end up wasting the many doses. The new virus variants are scaring health experts and it will take a lot of time to see how the current vaccines will hold up. Pfizer’s COVID vaccine had a lab trial that showed it was able to protect against the UK strain, while South Africa’s CDC reported that a study showed that the South African virus mutation (K417N & E484K) was resistant to antibody neutralization and that half the people were no-longer protected from reinfection. The reopening of the global economy has been delayed due to virus mutation (Beijing announced lockdowns for about 1.7 million residents in Daxing district) and as some countries (UK, Germany and Mexico) continue to see record COVID death figures. We are slowly leaving the peak of the virus but extending lockdowns continues to trump calls for reopening.
Right now, it seems that Wall Street only is focused on J&J’s COVID vaccine which could come out any day. My guess is that they will follow the Monday theme from Moderna and Pfizer and announce on January 25th in the pre-market. For Biden to have a chance to reach his 100 million doses in 100 days, he needs the J&J coronavirus single dose vaccine to be at least 80% effective against COVID-19.
Today’s Inauguration Day was like no other. With 25,000 National Guard fortifying Washington DC the inaugural ceremonies symbolized where the country stands on so many levels: A divided America during a pandemic. The inauguration of Kamala Harris was a historic moment for the country. Harris is the first female, first Black and first South Asian to become vice president.
Joseph R. Biden became the 46th president and is widely expected to deliver at least 15 executive orders that will undo some of the last four years of President Trump. President Biden’s speech attempted to unite the country, signaling he will repair global alliances, focus on jobs, and do whatever it takes to fight COVID.
On Day One, President Biden will rejoin the Paris Climate Accord, commit the US to staying in WHO, end border wall construction, halt the Muslim travel ban, and revoke the Keystone XL pipeline permit.
Treasury Secretary nominee Yellen did an amazing job yesterday in laying out an argument for massive stimulus. It seems Wall Street now has both a Fed and Treasury put. She provided Republicans some satisfaction in noting she will take on China’s abusive and unfair practices, adding she will take on a review of sanctions policy.
Regarding the US long-term fiscal trajectory, Yellen made no doubt that more support should happen and that while the debt-to-GDP ratio is higher, interest as a share of GDP is not above the financial crisis levels.
The Canadian dollar rallied after the Bank of Canada kept its overnight rate steady at 0.25%, as expected but disappointing some who were eyeing a micro cut. The BOC seemed downbeat, revising down growth forecasts, emphasizing the importance of vaccine execution, and highlighting options if the economy deteriorates. Governor Macklem noted that a micro-cut is one option available for the central bank. He added that if inflation picks up, they could back off of QE. Earlier, the December CPI reading showed price pressures dropped in Canada. The Canadian dollar rallied to the strongest levels since April 2018.
Crude prices rallied alongside the record run with US equities and as key oil spreads start to improve (pricing in the Saudis surprise voluntary 1million bpd production cut announced earlier in the month). The oil market seems unfazed with all the new virus variants and lockdown headlines and focusing on President Biden’s agenda that should help defeat COVID a lot sooner and support large parts of the economy until crude demand recovers. Oil’s fundamentals are improving but right now it is all about stimulus expectations that are driving prices higher.
WTI crude is facing massive resistance from the $54 level since short-term risks remain elevated for the demand side as China resumes some lockdowns. If cases in the US continue to fall fast, that should offset any rise we see in Europe.
Gold is rising higher as President Biden’s first 100 days point to lots more stimulus, inflationary pressures, and a focus on jobs. The dollar does not stand a chance if Biden delivers on his agenda and that should provide a strong backdrop of support for all commodities.
Lost in today’s news for gold is the recent weakness in Bitcoin. Over the past two months, Bitcoin would easily outperform gold on a day like today that is seeing a mostly weaker dollar and risk-on mood for stocks. Bitcoin’s bubble is not bursting but some investors are waiting for greater clarity on regulation and that should help bring back some of that institutional flow back into gold.
Gold will struggle to break above the $1,900 level unless Biden’s stimulus plan gets a fairly quick greenlight.
Bitcoin just entered the danger zone. A weaker dollar and with much of Wall Street on risk-on mode and Bitcoin is down around 5%. Demand for cryptocurrencies is plummeting as the global crypto market cap drops below the $1 trillion level. This doesn’t seem like the end for the crypto bubble, you just might need to see Bitcoin drop to $30,000 level before that institutional money sees value in it. Bitcoin volatility is not going away anytime soon, but right now it seems the cryptoverse is in for a lot more pain in the short-term.
This commentary is kindly contributed by Edward Moya, Senior Market Analyst, New York, OANDA