Economy7 hours ago (Jan 06, 2021 06:37AM ET)
By Geoffrey Smith
Investing.com — The Democratic Party looks to have regained control of the U.S. Senate, winning both of Georgia’s runoff elections. Tech futures fall sharply on fears of higher taxes and tighter regulation under a Democratic government. 10-year Treasury yields top 1% in anticipation of higher borrowing; ADP payrolls are due, and oil is trading at a 10-month high after Saudi Arabia reverts to being the world’s swing producer – if only for a couple of months. Here’s what you need to know in financial markets on Wednesday, January 6th.
1. Georgia Senate runoffs both seen going to Democrats
The Democratic Party is set to after six years of Republican majorities. U.S. television networks and election prediction services said Raphael Warnock had defeated the GOP incumbent Kelly Loeffler, while Jon Ossoff was on course to unseat David Perdue in the other runoff that was held on Tuesday.
Warnock’s margin of victory was estimated at around 50,000, while Ossoff’s lead was just under 13,000, with over 99% of votes counted.
If confirmed, the results will give a Senate that is split 50-50, enabling Vice President-elect Kamala Harris to exercise a casting vote. That would suggest that incoming President Joe Biden will find it easier to get his cabinet picks confirmed, and his fiscal policy plans approved.
2. Stocks’ reaction to Georgia election mixed
Global stocks reacted in mixed fashion to the news out of Georgia, with European and Chinese stocks rising in anticipation of a less confrontational trade policy and a more expansive fiscal policy from the next administration.
U.S. stock futures were mixed, however, as investors weighed those considerations against fears of higher taxes and tighter corporate regulation, especially of the technology sector. were down 2.2% by 6:15 AM ET (1115 GMT), with losses accelerating as U.S. investors woke up to the news. were down 0.4% while were up 0.2%, reflecting the higher concentration of cyclical and financial stocks that can be expected to benefit from bigger stimulus spending.
The yield on the Treasury bond, meanwhile, rose above 1% for the first time since the eruption of the pandemic early last year.
3. ADP payrolls, Fed minutes due as PMIs get revised down
Away from politics, the data calendar for Wednesday is headed up by payroll processor ADP’s for December.
Net hiring by the private sector is expected to have slowed to only 88,000 through the middle of last month, its weakest since a catastrophic April last year, due to the rapid spread of the Covid-19 virus that led most states and cities to tighten restrictions on businesses and social gatherings toward the end of the year.
The trend was also in evidence in European business surveys released overnight, with the Eurozone Purchasing Managers’ Index being revised down to 49.1 from an original estimate of 49.8 due to a sharp weakening in services.
The Federal Reserve will also release the of its last policy meeting at 2 PM ET.
4. Chinese challenges grow with mass arrests, payment app ban
The challenges of managing relations with China continue to multiply. Outgoing President Donald Trump, whose election defeat is set to be definitively sealed later when Congress certifies the results of November’s poll, issued an banning U.S. entities from using a handful of Chinese payment apps, including Alipay and Tencent Holdings’ WeChat and QQ services. It cited national security grounds.
Separately, a World Health Organization team that is supposed to arrive in China to investigate the origins of the pandemic was held up visa issues, adding to suspicions that Beiijing is resisting international attempts to establish the truth behind the virus’ early growth stage in China.
To round things off, Chinese officials arrested over 50 pro-democracy politicians in Hong Kong, including lawyer John Clancey (a U.S. citizen), under the sweeping national security law whose enactment last year led to the U.S. ending its recognition of Hong Kong’s autonomy.
5. Oil at 10-month high on Saudi ‘goodwill gesture’
U.S. crude oil prices settled into a range above $50 a barrel for the first time in 10 months after Saudi Arabia said it will voluntarily for the next two months, having earlier brokered a deal that will allow its allies in the so-called OPEC+ group of producers to keep their output levels stable or – in the case of Russia and Kazakhstan – marginally higher.
were up 0.6% at $50.22 a barrel, while the international benchmark was up 1.0% at $54.12.
The motivation for Saudi Arabia’s self-styled “goodwill gesture” remains unclear, beyond the obvious concern about a short-term dip in demand from widening lockdowns in Europe and elsewhere.
U.S. at 10:30 AM ET may also support the tone, after figures from the American Petroleum Institute suggested that dropped by more than expected last week.
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