Stimulus Passes Senate - U.S. To Outperform

Well done Joe, you passed the whole $1.9 trillion stimulus package...

Highlights

Biden stimulus showers money on Americans, sharply cutting poverty and favoring individuals over businesses (Washington Post)

What’s in the Senate’s $1.9 trillion covid bill: Checks, unemployment insurance and more

It could run to far more than 1.9 trillion according to the CFRB...

We all know there's nothing more permanent than a temporary government measure...

Potential for another $2 trillion infrastructure bill too, although GS don't expect this until later in the year...

OK, so stimmies are en route... What next...?

Sell the fact?

‌‌Or did markets already do that last week before it was fact...?

Or maybe these things are/were entirely unrelated...

Less thinking... just BTFD, right?

Errr... Maybe?

My main problem with the 'sell the fact' narrative is knowing how much was actually being priced in... 👇

From a trading perspective, I'm leaning towards a 'buy everything' reaction initially...

Cathie's ARK might even get a bid...

Not sure how long all that will last...

Rates rising is generally bad for the unicorn stocks (highly levered with big promises that don't make any money) and these should remain pressured in a higher rates environment.

But just how much will markets rotate away from the tech giants and into consumer/'real economy' stocks...?

What impact would this see on the broader indices...?

The stimulus gives a lot of individuals at the lower end of the income scale a boost, plus the unemployment safety net is still substantial...

Those with higher incomes already have a pile of savings, and it is their social responsibility to spend and fulfil the forecasts of pent-up demand...

‌The U.S. reopening continues...

And the vaccination pace is still picking up...

USD outperfomance to continue...‌‌‌‌

Nordea with some excellent overlays & visuals...

ECB meeting this week

PEPP data tomorrow will show if they were happy jawboning the yields lower or actively buying bonds when everything went a bit crazy at the end of Feb...

Recent ECB jawboning (via ABN)

Bonds, yields & FOMC blackout

‌‌U.S. treasuries keep getting sold and there could be more to come...

The SLR relief expires on the 31st of March 2021.

It can be extended at any time (not an FOMC decision so independent of blackout period). If SLR is not extended, 'forced' selling in treasuries could push yields higher again...

Keep an eye on these auctions - the poor 7 year auction a couple of weeks ago sparked a big move in rates, and there are some chunky auctions this week too...

Cards on the table, I don't fully understand the process.

The concern is how much demand there will be amid the SLR uncertainty (if primary dealers already have too many on the books with no SLR relief, why buy more?)

I'm guessing the shorter dated auctions will be relatively uneventful for wider markets, but the 3, 10 & 30 have potential to spill over elsewhere if the takeup is poor...

SLR explained by JP Morgan 🔽

Place your (rate hike) bets...

Nice reminder that no-one knows, and everyone is just making their best guess...