Stock Traders Wait For Clarity On Stimulus

The New Stimulus Package Will Remain In Spotlight In The First Days Of Biden’s Presidency

U.S. President-elect Joe Biden has recently unveiled his stimulus plan which is worth as much as $1.9 trillion. Theoretically, the huge stimulus announcement should have served as a significant upside catalyst for stocks. In practice, traders have doubts about whether the stimulus plan will remain intact during negotiations between lawmakers.

As a result, S&P 500 has corrected from recent highs but remains close to all-time high levels. The recent Retail Sales report showed that Retail Sales decreased by 0.7% month-over-month in December as the second wave of the virus put pressure on consumer activity. On a year-over-year basis, Retail Sales were up by 2.9%.

The U.S. economy clearly needs another round of stimulus, and markets may give more weight to this topic compared to the earnings season as companies’ reports reflect past performance while the new stimulus package will have a major impact on the future performance of the economy.

The U.S. Dollar Continues To Rebound

The U.S. dollar finished the previous year on a weak note and looked ready to continue its downside move. However, the American currency has found support in the early days of this year and continues to rebound against a broad basket of currencies.

The main driver of this rebound was the sell-off in the U.S. Treasury market which pushed Treasury yields to multi-month highs. However, Treasury yields have pulled back from recent highs while the U.S. dollar continued to move higher.

The continuation of the current rebound may have a significant impact on commodities and stocks so traders should watch this situation closely. If traders and investors continue to increase their purchases of the safe-haven dollar, riskier assets may find themselves under pressure.

Oil Will Try To Move Higher Despite The Extension Of Lockdowns In Europe

Oil has slipped from recent highs as traders took some profits after a major upside move which was supported by declining inventories and Saudi Arabia’s decision to cut production by 1 million barrels per day in February and March. Oil-related stocks also corrected from multi-month highs.

The recent data from China which indicated that the country’s Industrial Production increased by 7.3% year-over-year in December may provide additional support to oil as it showed that the main driver of the current oil demand rebound was in decent shape.

The main risk for oil and oil-related stocks in the near term is the situation in Europe which will likely have to leave significant virus containment measures until the end of the first quarter. However, traders have previously managed to ignore the negative developments in Europe so oil has decent chances to continue its upside move.

For a look at all of today’s economic events, check out our economic calendar.