Daily Briefing: Keep calm and trade on reflation By Reuters

By Julien Ponthus

LONDON (Reuters) – Rioters storming the U.S. Capitol haven’t distracted traders from focusing on the implications of the Democrats gaining control of the Senate — in a nutshell, a clear-cut reflation trade.

“Anything that benefits from rising prices is going to do well”, was how Mathan Somasundaram, head of Sydney-based research firm Deep Data Analytics, summed up the impact of the Democrats controlling both chambers of Congress and the presidency.

Of course, seeing the S&P500 index hitting record highs even as Donald Trump’s supporters were seeking to stop Congress from certifying President-elect Joe Biden’s victory may felt counter-intuitive but the most significant market action was taking place elsewhere.

The yield on 10-year U.S. Treasuries, essentially the main reference rate for global borrowing costs, has burst above 1.06%, a first since the COVID-19 market crash in March 2020. Ten-year breakeven rates, a measure of expected inflation, are up and over 2%.

Commodities are well sought-after too this morning, with prices for copper, that well-known growth barometer, hovering near an eight-year.

Meanwhile, expectations of higher inflation may be offering another boost to bitcoin which is now at $37,148, having hit yet another record high earlier of $37,800.

Overall stock markets in Asia have closing on a strong note well and European bourses are set to open comfortably in positive territory.

A big batch of euro zone economic data will help markets set a clearer trend as the session begins.

Key developments that should provide more direction to markets on Wednesday:

Euro Zone Economic Sentiment

German factory orders for November

Eurozone inflation

U.S. weekly jobless claims,

Follow up of the U.S. crackdown on Chinese companies with reports of the Trump administration considering investment bans to tech giants Alibaba (NYSE:BABA) and Tencent (HK:0700)