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Tough to take it all in but there’s a clear message
I think the message from last week was just how much money was on the sidelines. It was totally understandable to want to sit out the US election, especially with covid cases soaring. The battle for the past 8 months has been the worrisome present versus the low-rate, post-vaccine future. Now the market has a reason to focus on the future.
Fed fund futures aren’t rising on this and you can count on the Fed staying at zero for another 3 years. Ultra-low interest rates create virtually unlimited money and it’s looking for a home. Even with these pre-market moves, there are plenty of cheap assets out there.
Take Mexico, which got a double-dose of good news with this and the US election. It’s up 2.2% today but it’s still down 6.6% since January 1.
Gold is down $70 today but I think it’s eventually going to be a winner in this. The reflation trade is coming and easy money isn’t going away. Today certainly isn’t the day to be buying the dip though.
I think the FX market is sending the clearest message: Get out of US dollars and safe havens; get into risk assets, commodity currencies and emerging markets. Avoid tech.