Risk sentiment was cautious in Asia on Wednesday, with Asian stocks mixed, with focus on the U.S. Senate election in Georgia.
By the close of trading, Australia’s ASX200 index was down 1.12%; The Nikkei 225 closed down 0.40%; South Korea’s Kospi index closed down 0.75%.
The results of Georgia’s January 5 runoff election for the U.S. Senate are not yet known. The outcome will determine which party wins the Senate majority, which in turn will have a major impact on the functioning of the new U.S. government.
According to Edison Research, the Democratic candidate leads in each of the early estimates. Final results could come Wednesday, though if the margin is close, it could take days.
Investors are bracing for the possibility of taking control of the U.S. Senate in Georgia, both of which were won by Democrats.
After Democrats’ slim majority in the House of Representatives, a similar victory in the Senate could unleash a bigger fiscal stimulus, paving the way for President-elect Joe Biden to push for greater corporate regulation and higher taxes.
Adam Cole, currency strategist at RBC Capital Markets, said: “The market reaction to the election result may depend on what people think it means, rightly or wrongly, for fiscal policy. If Democrats do win those two seats, people will think [President-elect Biden] will have more freedom to set policy, which could mean more fiscal easing.” That would boost risk-taking sentiment and weigh on the dollar, he added.
“The market correction seems reasonable and healthy. But it’s not going to go to zero because there’s a good piece of news to counterbalance that, “said Phil Orlando, chief equity market strategist at Federated Hermes, referring to a possible Democratic sweep of Congress.
“The honeymoon period between the Biden administration and the Democratic Congress led by Nancy Pelosi and Chuck Schumer is likely to see more fiscal and infrastructure spending,” Orlando said. That will give the stock market a boost in 2021.”
In currencies, the Australian and New Zealand dollars were slightly stronger, while the dollar and yen were slightly behind as the focus remained on the Georgia election.
The Democrats appear likely to sweep the board, but official results are not expected until later this afternoon. That said, the market wasn’t waiting for a wobble, as Treasurys stumbled at the start of morning trading in Europe.
The yield on the 10-year Treasury note rose above 1 per cent for the first time since March, rising 5.5 basis points to 1.01 per cent. That hasn’t reverberated in other markets yet, but it could strengthen the dollar later in the day.
In the equity sector, the reaction so far has been mostly negative, with US futures lower and technology stocks the hardest hit. It could also be a reaction to rising yields, since tech stocks have generally reacted poorly to big swings in yields in the past.
As noted earlier, the market can rely on whatever it sees fit, but as long as the key driver, the Fed, remains calm, there is reason to believe that any significant selloff will once again prove to be just a correction.
In commodities, spot gold was down slightly on the day and is now near the $1,940 mark, while silver was down nearly 1 percent. Crude oil prices maintained a slight rise.
Daniel Briesemann, an analyst at Commerzbank, agreed that rising inflation would support higher gold prices. “The chances of Democrats picking up those two seats are increasing, which means they will have a majority in the Senate, which will make it much easier for Joe Biden to do his job,” he said.
On the data front this session, the market is focused on the so-called “small non-farm” US ADP employment data.
On the financial front, markets remain focused on the U.S. and China situation. Standard & Poor’s Dow Jones said on Wednesday it had canceled its deletions of the ADRs of China Mobile, China Telecom, and China Unicom (Hong Kong) from its index. S&P and Dow Jones had been scheduled to dump the American depositary receipts before the market opened on January 7. S&P Dow Jones canceled the delisting after the New York Stock Exchange announced it would not move forward with the delisting, the company said in a news release.
Trend analysis of major currencies:
EUR: The euro/dollar built on yesterday’s gains and traded around 1.2330 for the day. Technically, the 4-hour chart shows the MACD red momentum column expanding, the RSI indicator rebounding above the 50 level, and the KDJ indicator rebounding close to the overbought level, indicating that there is still room for price upside in the short term. Initial short-term support stands at 1.2250, initial resistance is seen at 1.2350.
GBP: GBP/USD advanced further on the day above 1.3650 after rallying above the 1.36 mark yesterday. Technically, the MACD green momentum column continues to weaken and is close to disappearing from the 4-hour chart. The RSI index has rebounded from the 50 level, and the KDJ index has rebounded above the 50 level, suggesting that prices may rebound in the short term or further. Initial short-term support stands at 1.3560, initial resistance is seen at 1.3680.
JPY: USD/JPY tumbled as high as 102.60 yesterday and fell further below that level on the day. Technically, from the 4-hour chart, MACD green momentum column weakened slightly and nearly disappeared, RSI index fell further below the 50 level, KDJ index traded at the 50 level, it is expected that prices will continue to fluctuate downward in the short term. Initial short-term support stands at 102.45, initial resistance at 103.00.