U.S. Futures, Treasuries Slip Amid Georgia Count: Markets Wrap

(Bloomberg) -- U.S. equity futures slipped with Treasuries on Wednesday as voted were counted in key elections in Georgia that could have implications for President-elect Joe Biden’s agenda. Asian stocks were little changed.

S&P 500 contracts retreated and 10-year Treasury yields ticked higher amid a tight contest in both Senate runoffs. Some strategists argue that a Democratic double win would mean additional stimulus, tax hikes and more regulation. On Tuesday, the U.S. equity benchmark rebounded from its worst start to a year since 2016. The dollar edged up after touching its lowest since February 2018 against major peers.

Stocks posted a modest climb in Japan, while South Korea’s Kospi Index topped the 3,000 level for the first time before paring gains. Shares in Hong Kong dipped. Chinese equities were around a 13-year high, shrugging off concerns after President Donald Trump signed an order banning U.S. transactions with eight digital Chinese payment platforms including Ant Group Co.’s Alipay.

In the short term, the pandemic is taking a back seat as markets brace for the outcome of the Georgia runoff, with results expected on Wednesday. Democrats taking control of both houses of Congress could potentially lead to upward pressure on inflation and interest rates, as well as higher taxes to pay for more fiscal aid. Conversely, should either Republican incumbent win re-election, the party would have enough votes to impede Biden’s policy platform.

Traders see U.S. inflation averaging at least 2% per year over the coming decade, based on the 10-year breakeven rate, a measure that draws on pricing for inflation-linked Treasuries.

“Democrats would need to win both races to control the Senate and hence both houses, allowing them far more freedom to run larger fiscal packages,” Sebastien Galy, senior macro strategist at Nordea Investment, said in a note. “A dual win should lead to a steeper curve and a weaker dollar as the fiscal situation would be seen as unsustainable, but it would also be welcomed by the equity market, particularly cyclicals, while in growth pressure might appear on the monopolistic Internet giants.”

Meanwhile, tensions between the U.S. and China ratcheted up with Trump’s order banning U.S. transactions with Chinese payment apps. Earlier, the New York Stock Exchange decided to reconsider its decision to halt the delisting of three major Chinese telecommunications firms after Treasury Secretary Steven Mnuchin told the Big Board he opposed its shock announcement to grant the companies a reprieve.

Elsewhere, oil edged higher after surging to a 10-month high on a surprise Saudi Arabian pledge to cut an extra 1 million barrels a day of crude output in February and March.

What to watch this week:

• U.S. Congress meets to count electoral votes and declare the winner of the 2020 Presidential election Wednesday.
• FOMC minutes out Wednesday.
• U.S. unemployment report for December is due Friday.

These are some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.5% as of 12:25 p.m. in Tokyo. The S&P 500 rose 0.7%.
• Japan’s Topix index rose 0.3%.
• Australia’s S&P/ASX 200 Index fell 1.3%.
• South Korea’s Kospi index dipped 0.1%.
• Hong Kong’s Hang Seng Index fell 0.7%.
• Shanghai Composite Index lost 0.2%.

Currencies

• The yen was at 102.79 per dollar.
• The offshore yuan fell 0.2% to 6.4423 per dollar.
• The Bloomberg Dollar Spot Index rose 0.1%.
• The euro was at $1.2291, down 0.1%.

Bonds

• The yield on 10-year Treasuries rose three basis points to 0.98%.
• Australia’s 10-year bond yield added five basis points to 1.03%.

Commodities

• West Texas Intermediate crude rose 0.4% to $50.15 a barrel.
• Gold slipped 0.3% to $1,944 an ounce.

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