Surprise for Oil, Georgia election and stable pound

6. Jan. 2021

The main event of yesterday can be considered the elections to the Senate from the state of Georgia, since they will determine who will control it: Democrats or Republicans. Recall the current balance of power: 50 seats for the Republicans and 48 for the Democrats. There are 2 places at stake. If they are taken away by the Democrats, then the votes will become equal, which means that the right of the decisive vote goes to the Vice President of the United States, that is, the Democrats.

Recall that following the November elections, the White House and the House of Representatives will be controlled by democrats. Taking the Senate means that they can implement any of their initiatives. For example, to increase corporate taxes in order to find money to fulfill their other promises (increase the minimum wage, increase fiscal stimulus, implement infrastructure projects, etc.).

Considering that one of the secrets of the US stock market growth in recent years was a sharp decrease in corporate tax by Trump, one can expect the opposite processes, that is, a decrease in prices in the market.

OPEC +, after failing to make a final decision on Monday, continued negotiations yesterday. Saudi Arabia and Russia managed to reach an agreement not to increase production in February but with the condition that production will increase in March. The basis for this agreement was the unexpected proposal of the Saudis to cut oil production by 1 million barrels per day in the next two months. As a result, on Tuesday, oil prices increased by 5%. Time will show whether this event will become a driver for a new wave of med-term growth. As a reminder, since January 1, OPEC + has increased production by 0.5 million bbl / d, but oil prices did not even intend to decline in this regard. That is, what is happening in the oil market is still a part of general processes in the financial markets.

Another part of these processes is the permanent downward pressure on the dollar. There is nothing else to explain yesterday's pound growth on the background of news about the third lockdown in the country and 60K new cases, despite the fact that the vaccination process in Britain is in full swing.

Positive sentiment in the markets yesterday fueled by data on manufacturing indexes from ISM in the US and impressive retail sales in Germany. However, today's data on the US labor market from ADP may well bring the markets back to the ground.