Fed eases taper tantrum fears

A relatively calm session on Wednesday, with Europe ending the day a little mixed and US indices edging higher, led by tech.

There's a lot of US political noise now as far as the markets are concerned. The shocking events on Capitol Hill and now the likely prospect of an historic second impeachment for President Trump is front and centre of the news flow but it's having minimal impact on the markets.

Investors are far more concerned with the incoming administration and what that means for stimulus prospects and inflation. Soothing words from Fed policy makers over the last 48 hours have helped take the edge off the yield moves which could provide some relief. I guess we'll see in the coming days just how much.

Should we see the 10-year drop back below 1%, it would suggest investors are far more at ease with the Democrats stimulus plans and could be bullish for stock markets, no longer held back by the prospect of premature Fed tightening.

The political distraction will likely remain ahead of the inauguration next week as security is ramped up. Any hopes of an impeachment trial in the Senate over the next week have been quashed by Majority Leader Mitch McConnell who dismissed the idea of reconvening for a trial before Trump leaves office.

Oil slips after another bright start

Oil started the day on the front foot but slipped as the US open approached and have been lower since. It's been a remarable rally for crude in recent months, with OPEC+ giving it one final push last week after deepening cuts, thanks largely to Saudi Arabia. The decline came just as WTI hit its highest level in around a year, which may have contributed to some profit taking. Near-term risks remain for oil markets, with Covid causing huge problems in many countries which means we're likely to see more restrictions for longer. The action from OPEC+ may limit the downside but a little profit taking may kick in soon enough.

Gold flat as yields pull back

Gold is relatively flat today after stabilizing around $1,850 in recent sessions. This was a major area of support late in the summer so may be having a psychological impact this week. Fed policy makers have eased concerns about a taper tantrum which has taken the edge off yields and, in turn, the pressure off gold prices. Whether that will lead to a sustained decline in yields or not is another thing. A move back below 1% on the 10-year could be a positive sign for gold, which has a lot of lost ground to make up after it crumbled last week. 

Slow comeback for bitcoin

Bitcoin is staging its comeback, albeit at a more moderate pace than we've become accustomed to seeing. ECB President Christine Lagarde's scathing verdict on bitcoin were brished aside by a community used to being cast aside by people in positions of power. While some may even view this positively, a badge of honour even, it shows the challenges the cryptocurrency faces in becoming mainstream even if it can become a more stable currency, which it has shown no signs of doing. Lagarde dismissed its prospects of becoming a currency and correctly labelled it a highly speculative asset. It has many enormous obstacles to overcome.  

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/