Before The Bell: Vaccines Rollout and Weekly Market Drivers

s&p 500 and crude oil

This will be a busy week of data and events after which trading is likely to thin into the holidays. The tug of war between the virus/lockdowns and vaccines will keep trading choppy, along with uncertainties over more fiscal relief. The Fed, meanwhile, will confirm it’s going to keep policy accommodative for some time to come. Wall Street has been buoyed to more new highs this month, including Dow 30k, on the improved outlooks for 2021, and that should be the general tone, albeit with bouts of profit-taking. (Excerpt from Advisor Market Report- Click For Free Trial)

Key Drivers for the Week of Dec 14 – Dec 18

  • Vaccines begin rollout in the UK and US amid ongoing woes over virus and lockdowns
  • Brexit endgame remains unresolved, no-deal risks heighten
  • FOMC, BoE, BoJ may all act to help mitigate negative virus effects
  • Other central banks including SNB, Bank Indonesia, Philippines, Taiwan seen on hold
  • U.S. includes retail sales, industrial production, PMIs, housing starts, jobless claims
  • Canada looks to CPI report, retail sales, housing starts, manufacturing shipments
  • China reports production, retail sales, fixed investment
  • Japan releases Tankan, tertiary index, trade, national CPI, production
  • Europe awaits confidence data, preliminary PMI reports, consumer prices
  • UK slate has labour data, retail sales, inflation numbers, preliminary PMIs

We are overall very Bullish with the markets but slightly worried that energy has risen higher than markets and could drop significantly if the economy turns. The chart above shows crude oil and the S&P 500. Investors need to be cautious about all energy sector stocks and EFTs specifically those tied to oil.

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Concurrently a reflation trade has gripped Treasuries since the summer. But bonds have rallied in recent sessions to unwind some of the selloffs that pushed rates up to multi-month highs. The front end has seen the 2-year yield drop to 0.115% on Friday from 0.183% in mid-November that was the highest since late June. The 10-year fell to 0.872% after testing 0.968% on December 4, the highest going back to March.

The focus today will be on the vaccine rollout that began over the weekend. Wall Street has been pricing in the positive effects so there may be little further upside for stocks at this point. In the meantime, the spike in the virus and lockdowns will provide profit-taking incentives. Treasury market worries over inflation have been dimmed by recent data and the slowing momentum in many parts of the economy should keep a lid on rates too.

We also expect the FOMC to stress a lower-for-longer policy stance at this week’s meeting (Tuesday, Wednesday), which could include a duration extension on QE purchases. Today’s agenda is very light with nothing on the economic calendar, though the week’s slate includes key numbers on retail sales, industrial production, and housing start The Electoral College meets today to cast votes for the president, expected to be ex VP Biden, but they won’t be unsealed until early January. We’ll also wait to see if there’s a last-ditch effort out of Congress to pass additional Covid relief before the CARES Act expires on December 26.

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