2021: As we move closer to a Biden Presidency after this week’s fiasco at the capitol, here’s how the markets seem to be pricing in this development:
More fiscal stimulus: Both equities, and commodities - especially gold, copper, and nickel saw an uptick as market participants weighed in the risk of a potentially more ambitious fiscal stimulus. Bond markets, subsequently, saw yields climb to > the 1% mark amid quite a sell-off. I reckon that as rumors of a second handout build into news, a lot of that bond money may make its way to value stocks, potentially fuelling a growth-to-value rotation as a steeper yield curve benefits companies making money on positive inflation commodities. See steel stocks such as $MT. In short: Reflation trades have taken center stage, and are here to stay.
Implications on the USD: The dollar’s pullback has hinged much more on the perceptions of stimulus support and relief bills rather than the expectations of an increase in global growth. As Democrats take the presidency and all that comes with it, Biden may wish to spend some political capital on COVID-relief and vaccine rollout, further steepening the dollar decline in conjunction with growth picking up in 2021.
What are your thoughts on this? Let me know in the comments.