Treatment Rumours & Iowa Dems Damage

US indices resume their rally on a combination of surging tech shares partly powered by Tesla, reports of a possible treatment for the Corona virus and renewed signs from central banks that they will act where needed to stem the economic impact of the deadly virus. When the US election will begin to effect markets is an open question but the rally in risk assets after the Democratic fiasco in Iowa is some evidence that markets are tuned in. The Australian dollar was the top performer while the yen lagged. US ADP employment surged to a higher than expected 291K from 199K. All eyes turn to the Jan ISM non-manufacturing.

Click To Enlarge

The main factor driving the big rebound in risk assets Tuesday was undoubtedly fading coronavirus fears and the massive liquidity injection from the PBOC but politics likely played a part as well.

Almost everything that could have gone wrong for Democrats on Monday night did, as the party failed to release the results. On Tuesday officials belatedly released partial results showing Buttigieg narrowly ahead of Sanders, followed by Warren and Biden.

A common refrain was along the lines of 'this is the party that wants the government to run healthcare, but they can't run a vote.' The failure hurt the party's brand and is a stumble right out of the gate for a party that can't afford one.

Importantly, no candidate generated any real momentum and enthusiasm from the race. In particular, Joe Biden performed badly, hurtingchances of a centrist winning the nomination. Even more damaging was the poor turnout. The numbers mirrored the prior election cycle and where nowhere near what Obama achieved in 2008 and that's means a return to Trump's market-friendly policies, and perhaps a re-take of the House is more likely.

Looking ahead, January ISM non-manufacturing index is forecast to post a slight improvement to 55.1 from 54.9.

To get these Intraday Market Thoughts in your mailbox: Start here