A sliding US dollar helped create a risk on atmosphere in overnight trading. While headline writers point to a possible US stimulus bill, the reduced amount and increased uncertainty make it an unlikely market driver. Instead, after a 4 day losing streak, traders and investors bought the dip as stronger than expected industrial production data lifted sentiment.
The package under discussion in the US is for a $748 billion support bill - well down from the $1.2 trillion of measures discussed before the election, and far cry from the more than $3 trillion originally sought by the Democrats. The idea that markets rose because this pale imitation of fiscal support is on the table is fanciful.
The sectoral performance of the S&P 500 suggests the key driver is higher growth expectations, with energy and materials leading the market, and stimulus sensitive consumer sectors lagging. Investors are looking through short term concerns such as new lockdowns and elusive US stimulus packages, and instead are pricing a strong economic recovery over 2021.
Bonds sold off, and copper and crude oil moved higher, buoying commodity currencies. Crypto currencies were mixed, with gains for Bitcoin and Monero, but losses for many other coins. Despite the risk on flavour, gold also rose, perhaps due to the weaker US dollar.
Futures markets point to cautious opening gains across the Asia Pacific region. PMI’s for Australia in December released this morning are higher than forecast, and clearly indicate ongoing expansion in manufacturing and services. This may bolster sentiment ahead of Japanese PMIs due later this morning.