Global Macro Overview: Markets, 10-Year Treasury Yield, and Oil Prices

US Markets Unswayed by Events at the Capitol

Stocks continued climbing during Thursday’s trading session despite violence at the United States Capitol on Wednesday. In fact, it was a record-breaking day on Wall Street. The Dow Jones Industrial Average advanced 212 points, or 0.7%. The Nasdaq Composite jumped 2.6%, topping 13,000 for the first time, as shares of Microsoft, Alphabet, and Apple posted solid gains. Meanwhile, the S&P 500 advanced 1.5% to trade above 3,800 for the first time. Though yesterday’s headlines were dominated by news of riots in Washington, investors seemed much more focused on the results of the runoff elections in Georgia and the upcoming transition to a Biden administration.

Democrats Raphael Warnock and Jon Ossoff won their runoff elections in Georgia, meaning there will be a 50-50 split in the Senate with Vice President-elect Kamala Harris acting as the tie breaker. Investors are anticipating more stimulus, more infrastructure spending, and a treasury department led by Janet Yellen.

10-Year Treasury Yield Continues to Climb

After Congress confirmed the election of Joe Biden as the next President of the United States, the 10-year Treasury yield climbed above 1%—its highest point since March 20. The yield on the 30-year Treasury bond also rose to 1.849%.

US bank stocks popped 6.8% on Wednesday as a result and continued climbing yesterday. Traders believe rising rates will allow banks to charge more on interest-rate related products, thus increasing revenue and profit.

The financial sector is also closely tied to the health of the overall US economy. Therefore a quicker rebound driven in part by big stimulus payouts would ostensibly be good for banks’ bottom lines. Lastly, banks may also benefit from a Democrat-controlled government because more federal spending often translates to more borrowing by the US government.

Oil Prices Reach 11-Month High as Inventory Drops

The oil market has also gained strength in spite of political turmoil in Washington DC as prices touched an 11-month high this week. Prices remained steady on Thursday after US oil stockpiles dropped and Saudi Arabia pledged to reduce output more than was expected.

Brent crude remained flat at $54.30 per barrel after it touched an 11-month high of $54.90—a price not seen since before the coronavirus pandemic spread around the world. US West Texas Intermediate (WTI) was also up by 5 cents to $50.68. Meanwhile, as Saudi Arabia announced it would cut output, UBS analysts raised their outlook on Brent crude and now expect prices to hit $60 per barrel by mid-2021.

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