After the Election, the Transition begins

There are 10 weeks to go till the Biden Presidency is due to start. But Donald Trump has not yet conceded the race, and Senate control will be in doubt till New Year. Meanwhile, China has set ambitious goals for 2035, which will pressure US firms such as Apple.


We focus on Brent as the global benchmark.

Brent prices jumped early last week as high frequency traders cashed in on market volatility. They then fell back as speculators took profits, closing up $1.14/bbl on the week. At $39.60/bbl, they still remain in the down channel established since the end of August.

The issue remains demand. Gasoline and jet fuel demand are particularly hard-hit, and this is likely to intensify as much of Europe goes back into lockdown. European Air Traffic Control now forecasts that European air travel demand will not return to pre-pandemic levels until 2024, even in their most optimistic scenario.

Unsurprisingly, oil companies continue to close refineries as demand forecasts reduce. Shell announced the permanent closure of their 211kbd Convent, Louisiana refinery after failing to find a buyer.

And some are starting to doubt that petrochemical demand will somehow increase – given brand owner and consumer pressure for a transition to recycled product. Oman has now postponed its planned 1.6MT/yr DUQM petchem complex, in turn damaging the viability of the nearly completed DUQM refinery.

And as we noted last week, oil supply may well increase in 2021 if Joe Biden rejoins the Iran nuclear deal and removes Trump’s sanctions.

WATCH FOR: Signs of stress within OPEC+ caused by changing geopolitics after Biden’s win, and disagreements over how much further to cut oil production.

S&P 500

We focus on the US S&P 500 Index as the world’s major stock market index.

High frequency traders leapt into action as election excitement increased, with the S&P up 7.3% at 3509. All news was good news, as the outlook shifted from a ‘blue wave’, then a Trump victory, and finally potential gridlock with Biden in the White House and the Republicans holding the Senate. Unsurprisingly in these ‘best of all possible worlds’, volatility fell sharply with the VIX down 35% at 25. Looking ahead to year-end:

  • Much will depend on whether further stimulus emerges from the Fed and/or Congress, with markets likely to be disappointed by the size of any new packages
  • They may also start to reflect on his pick of former regulator Gary Gensler to work on market oversight
  • In turn, this will likely lead to more analysis of Biden’s 4 policy priorities – Covid, the economy, climate change and systemic racism
  • Nerves may also be tested by the 5 January Senate run-off election in Georgia, which could give Senate control to the Democrats
  • And with President Trump facing years in court after losing presidential immunity, the chances of a Nixon-type pardon by an interim President Pence will also be in the spotlight

Biden is a savvy political operator, and is set to work around any Senate Republican attempts to blocked his domestic agenda. As we suggested last week, prudent investors may well decide to take their profits before year-end, given the risk of higher capital gains taxes in the future.

WATCH FOR: S&P weakness and volatility to return, as attention turns back from the election to the worsening pandemic.

Interest rates

We focus on the US 10-year rate, as this is the “risk-free” benchmark for global markets.

Bond yields went on another roller-coaster again – ending the week down 0.04% at 0.82% after closing at 0.77% on Wednesday. Volatility also eased with the MOVE index falling by a third to 40. Currency movements are adding to the mix, with speculators starting to unwind their short positions on the dollar in favour of gold/silver and cryptocurrencies.

Volatility is likely to continue in the short-term, as the markets wants to believe that Biden will succeed in reviving inflation. Given our focus on America’s ageing population, we continue to see deflation as the more likely outcome over the next 4 years. And in the meantime, the Fed will no doubt continue to put downward pressure on interest rates, particularly longer-term 10 year – 30 year bonds.

WATCH FOR: Rising bond volatility as we approach the key Senate run-off in Georgia

China refocuses on tech and domestic consumption

Technology will now be at the core of China’s new Five Year Plan for 2021-25, after the recent top-level 5th Plenum meeting confirmed 3 key priorities:

  • Technology: Achieve technological self-sufficiency from the USA, and build robotics capability to compensate for the lack of young people
  • Green Recovery: Reduce pollution in production and transport, and build out 5G nationwide to enable “smart cities”
  • Support domestic consumption via the “Dual Circulation” concept, and aim to double online purchasing

China currently trains nearly 10x the number of STEM graduates/year as the US. So it has the necessary “firepower” to achieve these ambitious goals, and become the world’s leading technology power.

WATCH FOR: A continuing hit to Apple and other US tech sales in China.

Leave a Comment

The pH Report subscriber benefitsOur flagship service, The pH Report, gives you a global perspective on business-critical issues.

To request a sample copy and find out more about subscribing
Request sample


This Research Note has been prepared by New Normal Consulting GmbH for general circulation. The information contained in this Research Note may be retained. It has not been prepared for the benefit of any particular company or client and may not be relied upon by any company or client or other third party. New Normal Consulting GmbH do not give investment advice and are not regulated under the UK Financial Services Act. If, notwithstanding the foregoing, this Research Note is relied upon by any person, New Normal Consulting GmbH does not accept, and disclaims, all liability for loss and damage suffered as a result. The pH Report and pH Outlook are published by New Normal Consulting GmbH.
© New Normal Consulting GmbH 2021