Further gains to come after Biden inauguration

Published at Jan 22, 2021, in Market Wrap

Chris Beauchamp, Chief Market Analyst at IG, discusses US President Joe Biden’s inauguration and the ECB’s latest decision.

Stock markets are looking to make further gains after yesterday’s Inauguration Day rally. Meanwhile in Europe all eyes turn to the ECB’s latest decision.

The positive atmosphere in equity markets has carried over into another session, with much of the bounce being pinned on the re-engagement of the United States with the rest of the world.

The Biden administration has set to work with a will, overturning via executive orders a host of decisions made by the old regime, but Biden, as a grizzled veteran of the Senate, will know that getting legislation through the House is a much tougher prospect.

Already there are signs that the great stimulus package promised earlier in the week may have to be pared back, as the messy business of governing gets underway. Perhaps the great rotation away from tech and into value stocks will have to wait a little longer, with strength in tech stocks yesterday apparently reminding investors that giants like Amazon and others continue to throw off huge amounts of cash and still have huge potential for growth.

In any case, the FTSE 100’s performance over the past 24 hours has been much more muted, a reflection of its lack of high growth names, and a warning that perhaps the gains in old-economy stocks have gone too far, too fast, and may now be due at least a breather, if not a correction.

European markets are quieter ahead of the ECB, although it seems unlikely that the bank will unveil any major changes this time around. While the euro has weakened against the dollar from its highs earlier in the month, the overall direction of travel remains unchanged.

The ECB had previously been keen to downplay any concerns about the strength of the euro, but if reduced stimulus expectations in the US take the heat out of the dollar bounce, then policymakers in Frankfurt might have to start worrying again about the euro’s rise.”

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