The vote count from the Georgia Senate run-off suggests the Democrats have one of the seats, with the other still too close to call.
The markets have finally started to react to the potential for Democratic control of the US Senate. As expected, the US 10-year is trading above 1% (for the first time since last March), up 5bp today and 8bp so far this year.
Equities are not taking the developments positively yet reflecting the Democrat’s progressive agenda dichotomy of tax and spending against the backdrop higher yields.
Still, inflation break evens should catch up at some point and the market will eventually turn focus to the green flashing vaccine lights at the end of the COVID-19 tunnel regardless of its length.
There is currently a temporal mismatch between Treasuries reacting to a Democratic sweep’s reflation trade and the rest of the market not sure what to do as equities and gold aren’t getting much of a signal for 10-year yields just yet.
The US dollar is also predictably softer, with EURUSD now trading above 1.2310 triple which should open one door for a move to 1.2400 with the US Federal Reserve holding that other door open for the action to 1.2500.
Oil (WTI) is trading above $50 again on the stimulus impulse as top up Covid-19 relief checks could be in the mail as early as next week.
Spot gold is a tad lower since the open. However, XAUUSD feels very well supported with the depreciating dollar and firm US break evens.
On an absolute confirmation of a Democratic sweep in the Georgia Senate run-off, the yellow metal should rise further aiming for $2000.