Democrats gain control of Senate, U.S. Capitol protests gain global attention

Prior week summary

The major U.S. equity indices marched higher on the week, setting fresh all-time highs, as Democratic Party victories in the two Georgia Senate runoff elections gained the party control of the Senate fueling hopes for increased fiscal stimulus. The country turned its attention to Georgia on Tuesday for the two Senate runoff elections taking place that would decide the balance of power in the U.S. Senate. Raphael Warnock and Jon Ossoff won their respective races, giving the Democratic Party control of the Senate via Vice President-elect Kamala Harris’ tie-breaking vote. The news sent equities and long-term interest rates higher as market participants priced in their expectation for additional fiscal stimulus. Attention quickly turned to the mass election certification protests held outside the U.S. Capitol on Wednesday and to the group of protesters who entered the Capitol Building, forcing the joint session of Congress into recess and delaying the certification of Joseph Biden as the winner of the 2020 Presidential Election and the next President of the United States until the early hours of Thursday morning.

Market participants were the beneficiaries of a deluge of economic data releases to start the year that largely painted a mixed picture of the U.S. economic recovery. Construction spending rose 0.9% in November, below analyst expectations and the 1.6% increase seen in October, driven by a 5.1% increase in single-family housing construction. The manufacturing sector looks to have ended the year on strong footing with the ISM Manufacturing Index surging to 60.7 in December, well above the 57.0 level expectation and November’s 57.5 reading. The uptick in the national survey comes on the heels of strong data from the Chicago regional survey last week. The ISM Non-Manufacturing Index also surprised to the upside posting a 57.2 level in December, above analyst expectations and the 55.9 reading seen in November. The U.S. employment situation continues to raise concerns. On Wednesday, the ADP employment report indicated that the U.S. private sector shed 123,000 jobs in December, reflecting the consequences of implementing COVID-19 mitigation efforts across the country. Jobless claims surprised analysts falling to 787,000 in the last week. Continuing jobless claims also posted a decline falling to 5.07 million from 5.20 million the week prior. The December non-farm payroll report indicated that the U.S. economy shed 140,000 jobs in December, the first net loss in jobs since April, and a sharp contrast from the 336,000 job additions seen in November. The unemployment rate defied expectations for a rise and remained unchanged at 6.7% in December.

The look forward

In a light week for economic data releases, market participants are looking forward to updated figures on inflation, in the form of the Consumer Price Index and the Producer Price Index, retail sales, the Empire Manufacturing Index, jobless claims, and industrial production, among others.

Rates snapshot

Market implied policy path (Overnight indexed swap rates)