Will it be an economic muddle post-election?
Abraham George Macro View
A Biden presidency combined with a Republican Senate was not the street expectation before the elections. It looks like that’s what we will get. There are still hurdles to overcome. There are pending recounts, legal actions and some run-off elections to clear the way for a proper functioning off the presidency. Think they will get through all this but the expectations of a full blown democratic agenda being implemented has been tempered.
Most of the Democrats were expecting Biden to win by a landslide, carry the Senate and the House. That has been the pattern for all Democrat presidents since 1884. This year the streak has been broken unless the two run- off elections in Georgia can be swung towards the Democrats. What is not likely to happen is vast new spending, major new regulations and tax increases that was being talked about under a Biden presidency.
If Bill Clinton and Newt Gingrich could work together think Joe Biden and Mitch McConnell should be able to work together. At least, they are friends. In the 47 years, Biden has been in the Senate he has flip-flopped on many issues but in the end, he is a deal maker. He is able to work across the aisle.
While Biden may be not as hawkish as Trump on China, he is already making his views on China. He said China cannot be the only game in town. In light of the historic Regional Comprehensive Economic partnership agreement that was signed by 15 Asia-Pacific countries (India stayed out) on last Sunday, Biden said Washington needs to align with other democracies in trade so that it can start writing the rules. So think there are some changes coming.
Equities
Stocks got another lift up yesterday with another positive vaccine announcement. While all the major indexes rallied the Dow made a new high at 29,964 which was 30 points above the Nov 9 high. While the S&P and Nasdaq made highs it did not make new highs indicating a non-confirmation between the major indexes.
The S&P 500 has immediate potential to rise to 3705-3720 but a move below 3515 could start question the strength of this up move.
Bonds
Last week 10 year bond yields spiked up nearly one pct on the vaccine news. We may be seeing the catalyst of a major turn in bond markets. We have been warning about this for a very long time.
In the 30 years the next downside target is close to 167.
Euro
The dividing points on the Euro are at 1.1600 and 1.2010. Our hunch is Euro should gravitate higher and break above the 1.2010 level.
Gold
Gold has been making some very complex sideways movements. As long as we remain under 1900 the risk remains for a test of 1835 and probably a move down to 1760.