Ok lets all take a big intake of breath and breathe deeply out. Markets are doing the same today it seems with US stocks opening mixed and European stocks edging lower for a second straight day. Although there is increasing noise about the bubble mania of some equity markets, we know that further fiscal stimulus in the US is coming and offers key support for stocks. This should encourage further sector rotation out of growth to value stocks, such as energy and financials.

January is always an interesting month for stock market statistics, being the first of the year and the tone it can set for the year as a whole. The direction of this month has predicted the performance of the rest of the year some 75% of the time, be it gains or losses for the month. Of course, we await the inauguration of a new US President in eight days and the first year of the new incumbent of the Oval Office statistically has the lowest average return rate. And twelve of the last sixteen presidential election years followed the direction in January. Perhaps the critical point is that January tends to be one of the best return months of the year.

While the Dollar is also taking a breather from its counter-trend exertions over the last few trading sessions, bond yields are still on a tear, moving higher for six straight days and hitting post-Covid highs once more. The rise in real yields is really taking a hold on markets and is a potential big driver for the Fed and its policy direction. Markets have pushed the first rate hike forward and with Fed speakers recently talking more positively about the economy, this could be a headwind for risk assets in 2021 and support for King Dollar – which is very much against current consensus!

Sterling today’s clear winner

Governor Bailey has been on the wires today scotching talk of negative interest rates as he believes ‘there are still lots of issues’ with cutting rates below zero, one of them being that it crimps lending. In turn money markets have pushed back bets for a 10bp rate cut to 0% by the Bank of England to December from August. UK hospitals remain at breaking point but there are signs that infections are stabilising.

Once again, the bullish channel from the September 2020 lows in Cable continues to do its job after prices dipped yesterday. The 20-day Moving Average is supporting the bulls with 1.35 and 1.3450 offering support below.

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