Stocks set for more record highs

So much for a slow start to the new year. From a pair of tense Senate runoffs, to a mob breaching Capitol Hill, and even a shock supply cut from Saudi Arabia, global investors have had plenty to take in this week.

Yet, the buying momentum in stocks has shown its resilience.

After overcoming the slight wobble on Monday, US equity benchmarks have since posted new record highs on Thursday, with futures contracts still in the green at the time of writing. The MSCI ACWI index, which measures the overall performance of stocks across emerging and developed markets, also registered its highest ever close yesterday. Asian equity benchmarks are climbing on Friday, with the MSCI Asia Pacific index advancing some two percent already so far this year.

Reasons aplenty to look up

Stock market bulls have many reasons to expect further gains. Investors are getting more comfortable wading further out into risk-on waters, considering that the spillover from 2020’s downside risks have abated, be they Brexit concerns, or the US election cycle (with outgoing US President Donald Trump finally stating his intent for a smooth transition).

Now, investors are gravitating towards the increased likelihood of more incoming US fiscal stimulus in light of the Democrats’ sweep of the Georgia Senate runoffs. The latest FOMC meeting minutes underscore policymakers’ will to hold fast to its supportive stance. The Covid-19 vaccine continues its global rollout, with Moderna’s vaccine receiving the EU’s blessing this week.

Such elements are fostering a highly supportive environment for global equities, affording investors the luxury of looking past the persistent pandemic woes.

Dollar bears likely unfazed by US hiring slowdown

Fundamentally-driven investors will be focusing on the US non-farm payrolls release later today, amid expectations for a mere increase of 50,000 jobs in December. Such figures would be a far cry from the millions of jobs that were restored in the months after the initial national lockdown was ended. A December NFP print of 50,000 would also be a mere one-fifth of the jobs added in the month prior, signaling that the post-lockdown recovery is stalling.

Still, the dissemination of more fiscal stimulus under the incoming Biden administration should help tide the US economy over. After all, the president-elect did vow this week to mail out those US$2,000 checks would be sent out “immediately” if Democrats won the Georgia Senate runoffs, which they did.

With such expectations intact, the Dollar index may not have much legs left in its recent rebound.

Gold supported by hopes of faster US inflation

10-year Treasury yields breaching the psychologically-important one percent mark this week, along with the Dollar’s rebound, have dealt a slight setback to Gold prices. Yet, the precious metal is still trading above the psychologically-important $1900 level, and remains on course for a sixth straight weekly gain.

Bullion remains supported by the reflation trade, amid expectations that Democrats’ control of the White House, Senate, and the House should pave the way for more incoming fiscal stimulus that can drive up US inflationary pressures.

However, should December’s non-farm payrolls report later today offer more evidence of a stalling US jobs market, that may dampen Gold prices in the immediate aftermath, while waiting for more inflationary boosters to come through. The Fed’s conveyed tolerance for an inflation overshoot also bodes well for the precious metal’s upside.

Spot Gold still harbours the potential to reclaim the $2000 handle, especially if the precious metal’s tailwinds can gather pace as 2021 unfolds.

Still, as commented by Fed officials this week, there appears to be a risk of a pullback in the Fed’s asset purchasing programme should a US economic outperformance crystalize in the latter part of the year. Another massive yields spike may then trigger the further unwinding of Gold’s recent gains.