What’s happening: Political instability tends to weigh on currencies around the world, and the violence incited by President Donald Trump is unlikely to increase confidence in the US dollar at a time of weakness.
“In a way, that resilience is encouraging,” he told me. “We can’t necessarily take that for granted, however.”
Eurasia Group, the political risk consultancy, named the divided United States as the greatest risk for 2021. The internal political dynamics, together with the country’s poor pandemic management, will make it difficult for President-elect Joe Biden to reaffirm his global leadership role of America despite their best efforts, according to Ian Bremmer, the group’s president.
“The United States is by far the most politically dysfunctional and divided of all the advanced industrial democracies in the world,” Bremmer tweeted last Thursday.
Investor’s view: since the peak during the market turbulence last March, the dollar has fallen more than 12% against a basket of other major currencies. The consensus on Wall Street is that there is still room to fall.
“The stars seem very much in line with the weakness of the dollar,” said Rumpeltin.
Expectations that central banks will maintain an ultra-easy monetary policy while the recovery heats up also contributed. Thus, it is believed that the presidency of Biden will initiate a period of greater predictability, reducing the demand for safe-haven assets.
The big question, however, is whether political chaos will fuel a long-term erosion of faith in the US dollar, the world’s most prominent reserve currency. For now, the risk seems limited, in part because of the large volume of trades in dollar-denominated assets.
But, as the Eurasia Group points out, America’s global dominance faces real headwinds. Evidence: Europe has just finalized an investment agreement with China, aimed at rebalancing its trade relationship with the second largest economy in the world, despite the concerns of the United States.
“Biden’s mandate opens the era of the asterisk presidency, a time when the Oval Office occupier is seen as illegitimate by almost half the country,” said the group in its 2021 forecast. “Such a political reality has never occurred in another G7 country, but it is the reality of the most powerful democracy in the world today. “
How bad was 2020 for much of corporate America?
A handful of tech companies thrived during the pandemic. But for most companies, it has been a bleak year – and as the earnings season begins, we are about to learn the extent of the damage.
The flow of companies sharing the results for the period from October to December increases this week. A series will also release the figures for the entire year.
On the agenda: Delta Air Lines, Citigroup, JPMorgan Chase and Wells Fargo.
Investors have been paying close attention to bank profits, given what they can tell us about the state of the economy. Considering that the United States cut 140,000 jobs in December, much worse than economists predicted, there will be many questions about the quality of loans and whether executives are confident of current reserve levels.
Much of the focus, however, will be in the future. The KBW Bank Index, which tracks major US bank stocks, has jumped nearly 40% since the beginning of November.
That’s because Wall Street is looking at the economic recovery it believes is in full swing this summer. The fortunes of banks are closely linked to the performance of the economy. The prospect of higher interest rates in the future, which could increase how much money banks earn from loans, also helps.
“There should still be another 10 to 15% higher relative movement in bank stocks and potentially more if the economic recovery lasts several years (before the next slowdown),” analysts at Deutsche Bank said in a recent note to customers.
Next
Monday: CES, the consumer electronics show, begins virtually
Wednesday: US inflation data
Thursday: Initial claims for unemployment in the USA; Jerome Powell’s speech; Earnings from Tesco, BlackRock, Charles Schwab and Delta Air Lines
Friday: Retail sales and industrial production in the United States; Profits from Citigroup, JPMorgan Chase, PNC and Wells Fargo