Leaving Washington

What a week it was.

US equities fell Friday, amid dour retail sales and doubts about how quickly Congress will move to pass Joe Biden’s $1.9 trillion stimulus proposal, unveiled on Thursday evening.

Between slowing consumption and clear signs that the labor market is decelerating, the case for stimulus scarcely needs making. But a bitter partisan divide and recrimination following the riots on Capitol Hill and the second impeachment of Donald Trump could complicate Biden’s efforts at bipartisanship.

The Russell 2000 escaped with a weekly gain, while the S&P and the Nasdaq 100 logged losses.

Banks were hit hard Friday. Wells Fargo disappointed, which is just par for the course, but it weighed on the sector.

JPMorgan’s results, by contrast, were solid even as Jamie Dimon warned that investors can’t count on reserve releases to drive profits going forward. Considering trading results can’t possibly get much better, the outlook is arguably somewhat cloudy, although banks are at the forefront of the rotation in equities and will benefit from a steeper curve and any pro-cyclical upswing Biden’s administration manages to engineer.

Even with Friday’s steep selloff, the bank index ended the week with a small gain.

The dollar had a standout session Friday, logging one of its best days in months. That weighed on oil and gold, with the latter suffering a second consecutive weekly loss.

As for Treasurys, the selloff abated, as this week’s 10-year and 30-year sales went well, and the cloud of the pandemic hangs over the economy.

Yields were lower by 4bps Friday, with the 10-year at 1.09%, around 10bps off the highs. 1.25% now seems pretty far away again.

The debate will continue about the extent to which more fiscal stimulus “should” mean higher yields, even if the pandemic and associated lockdowns beg to differ.

“Weakness in Q4 data, little change in COVID infection rates and slow dissemination of vaccines are likely to keep 10-year yields between 1-1.20% range over the near-term,” SocGen’s Subadra Rajappa said. “The recent rise in yields also makes Treasurys look attractive to foreign investors on a currency-adjusted basis,” she added.

When it comes to the political situation stateside, Rabobank’s Philip Marey reiterated that it’s more about identity than it is about economics.

“It is unlikely that Biden’s economic policies will appease the Trump supporters,” Marey said this week, underscoring points he’s made before. “This is not about economics, although that may be difficult to understand for economists,” he added, noting that “Americans are living in two different worlds, but they have to find a way to live together in one country [which will] require a bipartisan approach aimed at alleviating the anxieties that come with changing demographics.”

And so ended the last full week of Donald Trump’s first (and only) term in office.

Next Wednesday, “he plans to travel to his home in West Palm Beach, Florida, and land there before noon, when he will still be commander-in-chief,” NBC said, citing a pair of sources familiar with his plans.

The same sources said Trump “didn’t like the idea of leaving Washington for the last time on anything but Air Force One, since that is no longer the call sign for the aircraft once the oath of office has been given to an outgoing president’s successor.”