US Market Open: Waiting on US fiscal stimulus and Brexit clarity
Matt Weller, CFA, CMT December 18, 2020 9:01 PM
US indices are pointing to a flat open as traders eye fiscal stimulus negotiations in Washington.
- US markets are poised to open near flat as US fiscal stimulus negotiations remain in flux
- European indices are ticking higher in relatively quiet pre-holiday week trade.
- The Bank of Japan left policies unchanged and did not seem particularly concerned with the yen’s recent appreciation
- Sterling and the euro are consolidating their recent gains against the US dollar.
- Both oil and gold are similarly quiet as traders wait for clarity on negotiations on both sides of the Atlantic.
US indices to open at new record highs
The S&P 500 is poised to open 0.1% higher today at 3718.
The Dow Jones is set to open essentially flat at 30,211.
All eyes remain on US stimulus negotiations
After a marathon negotiating session last night, the much-discussed US fiscal stimulus bill continues to grind slowly toward an agreement. As it stands, the two sides are at an impasse over Democrat requests for federal funds to match 100% of FEMA payouts for pandemic-related disasters and Republican demands to end the Federal Reserve’s emergency lending program. Adding an element of uncertainty to the proceedings, government funding is set to run out tonight, so traders will be focused on whether that deadline can make a deal happen, or whether a short-term stopgap bill is in play.
FDA approves Moderna’s vaccine
As anticipated, the US Food and Drug Administration (FDA) approved Moderna’s COVID-19 vaccine for emergency-use authorization. The company has indicated its on track to provide 20M doses this month and up to 100M doses to the US in Q1 2021. While multiple vaccines are now being distributed, the pandemic continues to ravage the globe at an unprecedented rate, with restrictions likely to remain in place well into 2021.
European indices edge higher in quiet trade
European indices are edging higher as of midday Friday, though volatility remains low amidst pre-holiday week trade and political wrangling on both sides of the Atlantic.
The Euro STOXX Index traded 0.1% higher midday.
France’s CAC 40 was essentially flat, while Germany’s DAX had was rising 0.4% to 13719. The index is now at its highest level since February 2020, representing the recovery of nearly all of its pandemic-induced losses this year.
Meanwhile, over the Channel, the FTSE 100 was ticking up 0.2% as investors held out hope for a Brexit negotiation breakthrough over the weekend.
Bank of Japan makes no major changes, as expected
The Bank of Japan (BOJ) made no major changes to monetary policy, as widely expected. The only tweak was an extension to the central bank’s funding package. In his comments, BOJ Governor Kuroda vowed to explore why the BOJ has failed to hit its 2% inflation target (for the past 20+ years!). Most importantly for FX traders, Kuroda noted that there is "no need to think that the yen rise is having serious effects on the economy" essentially ruling out intervention or “jawboning” to push the yen lower in the immediate future.
Forex: Sterling dips, greenback and euro edge higher
GBP/USD traded at 1.3542 at midday, down 0.3% on the day to consolidate its 300-pip rally so far this week.
EUR/USD was essentially flat at 1.2266, holding steady at its highest level since April 2018.
Commodities: Oil and gold hold their ground
Mirroring the slow trade in other markets, both Brent and WTI were trading near flat ahead of the US open. The two contracts remain in a holding positioning pending clarity on near-term catalysts including the prospects for a Brexit deal and US fiscal stimulus.
Gold also consolidated in the upper $1800s as precious metals traders were hesitant to push prices above the $1900 level, wary of the potential for slow holiday trading in the coming weeks.
Market-moving events in the economic calendar
The economic calendar is quiet today, with just retail sales out of Canada at 8:30 ET (12:30 GMT) on tap. Traders will be more focused on headlines around Brexit and fiscal stimulus negotiations.
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