Much of the markets’ focus last week was on the unprecedented and tragic events which engulfed the Capitol on 6th January.
The day before the two Democratic candidates had won the run-offs for the vacant Georgia state Senate seats, effectively granting control of the upper house to the Democratic Party. The 100-seat Senate is split 50-50 among both parties but Democratic Vice-President Kamala Harris has the casting vote. Only a few hours later on 6th January Congress convened to officially certify Joe Biden’s victory in the presidential election. The joint sitting was however quickly halted as pro-Trump protesters stormed the Capitol. The stand-off between police and security officers and protesters lasted hours and five people died. The joint vote eventually resumed and confirmed that Biden would formally take over from Trump on 20th January.
The reaction in financial markets is noteworthy. The negative correlation between the US Dollar and US equities in place since last February broke down on both 7th and 8th January. The S&P 500 rallied about 0.7% and 0.6% respectively while the US Dollar trade-weighted index also gained about 0.6% (the strongest daily rate of appreciation since 23rd September) and 0.1%. The US Dollar ended the week broadly flat, as did the Euro.
US macro data were mixed. The ISM PMIs surprised on the upside in December, with the manufacturing and non-manufacturing indices of the economy actively rising respectively 3.2 percentage points and 1.3pp. However the US economy shed 140,000 in December, the first fall in employment since April.
Sterling depreciated by over 1% last Monday after Prime Minister Johnson declared that all of England would be in full lockdown with schools remaining shut till the February half-term. Sterling was broadly stable for the remainder of the week, benefiting from the government’s announcement on Friday that the UK health regulator had approved the use of the Moderna vaccine which is expected to be rolled out this spring. Sterling has however weakened a tad since Friday.
The Australia and Kiwi Dollars have had a choppy eight days. They weakened last Monday, rallied from Tuesday to Thursday and were stable on Friday (ending the week up about 0.5% and 0.4%, respectively, in trade-weighted terms). However, they have since weakened and are now trading broadly where they were on 5th January.
The safe-haven Swiss Franc also gained about 0.5% last week and has been broadly stable in the past 48 hours.
