Pins And Needles And Records In China

The dollar drifted lower and US equities nervously eyed Georgia on the heels of the worst session for Wall Street since late October.

Consensus seems to have fractured vis-à-vis the implications of the various possible outcomes from Georgia’s key runoff elections, which will determine control of the Senate. Washington was on pins and needles ahead of the vote, while Capitol Hill braced for a tumultuous Wednesday when protests are expected as Congress meets to certify Joe Biden’s Electoral College win.

Most believed US breakevens (which hit 2% Monday for the first time since 2018) could move higher still if Democrats managed to prevail in Georgia, but beyond that, there was little agreement. Obviously, a unified Democratic government would presage more stimulus, but slim majorities would likely serve as a constraint, especially given moderates’ wariness of the derisive “socialism” label.

“If the Democrats win both runoff elections in Georgia this would open the door to a large fiscal stimulus package and more expansive fiscal policy in the coming years. Part of this will likely be financed by higher taxes somewhere down the road,” Rabobank’s Philip Marey wrote Tuesday, adding that “it would take only one centrist Democratic senator to derail the more ambitious plans of the left.”

Meanwhile, Chinese equities eclipsed levels hit during the halcyon days of the infamous 2015 bubble, which burst in spectacular fashion forcing a large-scale state intervention. The CSI 300 rose nearly 2% Tuesday, breaking on through to the other side of 5,353.75, the high from June 8, 2015.

The 2015 bubble, you may recall, was fueled by leverage. On Monday, margin debt on Chinese exchanges jumped the most in nearly six months, rising almost 24 billion yuan. That took the total beyond 1.5 trillion yuan for the first time in five years, on Bloomberg’s data.

China is the only major economy seen to have posted growth for 2020, and Tuesday’s fixing suggested authorities are in no rush to halt the currency’s appreciation after the yuan strengthened through 6.50.

Elsewhere, European equities are grappling with a new national lockdown in the UK, where virus cases have spiraled totally out of control thanks in part to an aggressive new variant which has been identified in multiple US states.

Regional assets looked poised to take the news in stride and there were efforts to find a silver lining. “The FTSE 100 can rely on commodity gains to shake off fresh virus concerns and outperform euro-area peers, at least in the short-term,” Bloomberg’s Heather Burke wrote, noting strength in oil majors and upbeat prospects for miners tied to China’s ongoing recovery and a weaker US dollar. “Materials companies, which include miners, and energy comprise over one-fifth of the FTSE 100,” Burke added.

It’s worth noting that unemployment in Germany unexpectedly fell last month despite new lockdowns. Total joblessness declined by 37,000 versus an expected increase of 10,000.

Of course, government assistance is instrumental in shoring up the labor market. Those availing themselves of short-time work schemes rose and companies continued to lean on government subsidies. Additionally, Germany’s manufacturing-oriented economy helps keep things stable, as the virus affects the services sector disproportionately.

Angela Merkel was expected to extend the latest COVID containment measures, which would have expired in just days. “At face value, [the] headline numbers suggest the German labor market could go through the crisis almost unharmed,” ING remarked on Tuesday. “However, the rising number of short-time workers, as well as the longer-term impact from the ongoing second lockdown and a high risk of insolvencies in 2021, clearly argue against too much optimism.”

You could apply some version of that assessment to almost every advanced economy on the planet.

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