Investor optimism rises as global markets welcome $900bn US stimulus package

US equity indices are likely to build on their gains and the greenback will be kept in check in January

FILE PHOTO: The Wall Street bull statue is pictured in the Manhattan Borough of New York, December 23, 2014. U.S. stocks advanced on Tuesday, as the Dow climbed above the 18,000 mark for the first time in history and the S&P 500 set a new intraday record after an unexpectedly strong report on economic growth.   REUTERS/Carlo Allegri      (UNITED STATES - Tags: BUSINESS)/File Photo
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Markets rolled into the final week of the year with more cheer as US President Donald Trump signed into law a second Covid-19 relief package worth $900 billion. Risk moods and investor appetite have benefited from the announcement, and global equity markets, commodity markets and currencies rallied against the US dollar.

This stimulus package, the second largest following the $2 trillion Cares Act package approved by the US Congress in March, kicks in when several of the earlier financial aid programmes, particularly jobless benefits, were set to lapse.

Some of the highlights of this stimulus package include individuals receiving $600 cheques (half the amount given in March), families getting an additional $600 per child and the jobless receiving $300 a week through to March 2021. The provisions of the second package also account for small businesses and their ability to take a second loan, a scheme that expired in August.

The announcement of the second stimulus package is welcome for the US and global financial systems. In the short term, it will also support global market sentiment, which is already running high on optimism after the Brexit trade deal and the rollout of the Covid-19 vaccine globally.

While we are in the middle of this trade-shortened week – markets remain closed on Friday for New Year – we await manufacturing PMI data from Europe and China on January 4 and US non-farm payrolls data (expected at 100,000 versus the previous 245,000) on January 8.

Currency markets – particularly yen crosses – are famous for getting vibrant in the first few weeks of January. Although the data points mentioned earlier should not trigger such a move, it would be wise to reduce risk and trade with stop-losses, particularly in yen pairs.

While January is typically seen as a hangover month for markets following the retail and consumer spending sprees during the December holiday period, I expect US equity indices to build on their gains from the past few weeks, while any gains in the US dollar will be kept in check in January.

Joe Biden will be sworn in as US president on January 20 and the Federal Reserve will reconvene on January 27. While no changes in interest rates are expected, it will be interesting to hear the central bank’s statement following the second Covid-19 relief package announcement.

The announcement of the second stimulus package is welcome for the US and global financial systems

We have finally made it to the end of a very tumultuous 2020. While we may not be out of the woods by any means – lockdowns are being re-imposed across Europe and the path to a global economic recovery looks uneven – we can put to rest several key themes, including the Brexit trade deal and the US fiscal stimulus package, which dominated the past quarter and year.

As we usher in the new year and vaccine administration increases around the world, we can look forward to 2021 with collective positivity and optimism.

Gaurav Kashyap is a market strategist at Equiti Global Markets. The views and opinions expressed in this article are those of the author and do not reflect the views of Equiti