US Market Open: Will the Democrats win control of the Senate?

• US markets are expected to open mixed today as the Democrats edge toward controlling the Senate in the Georgia runoffs.
• A Democrat-controlled Senate is regarded as positive for aiding economic growth from the pandemic, but prompts concerns among businesses over other policies like higher corporation takes and tighter regulations.
• European markets were trading higher at midday, with the FTSE 100 hitting its highest level since March.
• In commodities, oil prices continued to rally after OPEC+ agreed to cut production over the coming months.

US markets set for mixed start

The S&P 500 is called to open 0.2% lower today at 3718.4 from 3726.1 at the end of play yesterday.

The Dow Jones is set to open 0.3% higher at 30490.0 from 30399.0 at the last close.

One reason the S&P 500 is called to head in the opposite direction as the rest of Wall Street is because it is heavily-weighted toward Big Tech stocks that fear a Democrat-controlled Senate could usher in tighter regulations.

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Democrats edge toward controlling the Senate

The race to control the US Senate is extremely tight, with reports pointing toward a shock Democrat victory. Two Republican senators are trying to defend their seats from two Democrat rivals. Republicans will maintain control of the Senate if it can win one or both seats. The Democrats are seeking to gain control by winning both seats, which would cause a 50:50 split in the Senate and give incoming vice-president Kamala Harris the deciding vote – effectively swinging control to the party.

Reports suggest that Democrat Raphael Warnock has beaten Republican incumbent Kelly Leoffler. With 98% of the votes counted, Warnock was ahead by 1.2 percentage points, or 54,000 votes.

The winner of the second seat is expected to be announced at noon local time at the earliest (1700 GMT) and the race between Democrat Jon Ossoff and Republican David Perdue is thought to be extremely tight. The FT reported Ossoff was ahead by about 16,000 votes and likely to win as remaining votes were due to come from areas that typically favour Democrats.

The runoffs could prove crucial in deciding how easily incoming Democrat president Joe Biden can push through his policies on everything from healthcare to the environment, and decide how decisive the new administration can be as it guides the world’s largest economy through a recovery.

A Democrat-controlled Senate is regarded as a positive for the country’s economic recovery and paves the way for larger stimulus packages and increased spending on the likes of infrastructure, but it could also usher in more contentious policies like higher corporation taxes and tighter regulations for some industries such as Big Tech.

Biden’s election win is scheduled to be formally certified today, despite calls for president Donald Trump that the result should be overturned based on unfounded claims of election fraud.

Trump issues new executive order against Chinese payment apps

With just two weeks until he is due to leave office, president Donald Trump has issued a new executive order banning a string of Chinese financial payment companies from the US, which will be administered on Wednesday.

The order applies to a range of businesses including Alipay, CamScanner, Tencent QQ, WeChat Pay, SHAREit, QQ Wallet and WPS Office. Trump said they could pose an ‘unacceptable risk’ to US national security and is aiming to prevent them from accessing US data.

The move will undoubtedly stoke tensions with China in Trump’s final days in office and will leave president-elect Joe Biden to deal with the fallout. Earlier this week, the NYSE said it would no longer delist three Chinese telecoms companies – China Mobile, China Telecom and China Unicom – after Trump ordered them to be removed on security grounds. However, reports today suggest the NYSE could make yet another U-turn and decide to delist them.

European markets gain ground

The Euro STOXX Index traded at 3581.5 at midday, up 0.6% from 3560.3 at the end of play on Tuesday.

France’s CAC 40 was up 0.5% at 5611.0 from 5583.0, while Germany’s DAX was up 0.6% at 13781.0 from 13703.1.

Meanwhile, over the Channel, the FTSE 100 had surged 2.3% higher by midday at 6778.3 from 6624.8. The index is trading at its highest level since March, driven by the latest stimulus package and hopes that an accelerated vaccination programme can drive a quicker economic recovery this year.

Banks were among the strongest gainers in the UK as investors bet a Democrat-controlled Senate will pave the way for larger stimulus packages for the world’s largest economy, while energy companies also rose on the back of higher oil prices following the latest deal struck by OPEC+.

In today’s Top UK Stocks to Watch, Greggs shares surge despite it warning profits won’t recover until 2022, Informa says trading remains on track as it appoints a new chair, and Carnival warns that cruises in New Zealand will remain suspended for longer than anticipated.

UK and EU economies still struggling during lockdown, but optimism improves

The IHS Markit Composite PMI for the eurozone came in at 49.1 in December, having risen from 45.3 in November, but remained below 50, which signals contraction.

IHS Markit said the service sector fell by more than expected as they were among the worst-hit by new lockdown measures being introduced. However, it said overall optimism about a recovery had improved as countries begin to administer vaccinations.

Meanwhile, the Composite PMI for the UK came in at 50.4 in December – signalling a return to growth after reporting a reading of 49.0 in November. Services, which account for the bulk of UK economic activity, contracted at 49.4, but that was well ahead of the November reading. IHS Markit said the latest lockdown had caused services to return to contraction but that vaccinations had also improved optimism among UK businesses.

EU regulators meet to discuss Moderna vaccine

The European Medicines Authority (EMA) will meet on Wednesday to discuss whether Moderna’s coronavirus vaccine should be approved after failing to reach agreement earlier this week. An unscheduled meeting was held on Monday but was fruitless and it has not stated when a final decision will be made. However, authorities in the Netherlands have hinted that approval could be made as early as today and the EMA itself had set a deadline of January 12.

If approved, it would be the second vaccine approved for use in the EU after the Pfizer-BioNTech vaccine was approved in December, kickstarting the mass vaccination programme across the bloc.

The meeting comes as several European countries extend and tighten their lockdown restrictions, including the UK, Germany and Italy, as they try to stop a resurgence in cases, hospitalisations and deaths over recent weeks.

Forex: Dollar weakness

GBP/USD was trading at 1.36510 at midday, up 0.2% from 1.36271 at the last close. City Index analyst Fiona Cincotta has a technical look at cable ahead of the final results from the Georgia runoffs being declared.

EUR/USD traded at 1.23373 at midday, up 0.3% from 1.22978.

Meanwhile, EUR/GBP was up 0.2% at 0.90399 at midday from 0.90253 at the end of Tuesday’s session.

Start trading the opportunities in the forex market today.

Commodities: Oil prices rise on OPEC+ cuts

Brent traded at $53.82 per barrel at midday, up 0.5% from $53.53 at the last close, while WTI followed higher to $50.02 from $49.85. Brent trades at its highest price since March, while WTI has broken through the $50 threshold for the first time in 11 months.

The first OPEC+ meeting of the year has supported prices. Yesterday, Saudi Arabia agreed to voluntarily cut its own output by 1 million barrels per day in February and March in order to support its own economy and the wider oil market, while most other major producers will hold output steady at existing levels. Russia and Kazakhstan, which both pushed for the group to raise output, will be permitted to raise their output by 75,000 barrels per day in February and again in March.

OPEC+ were forced to cut output by record amounts last year as demand plummeted as a result of the pandemic but had planned on raising production by 2 million barrels a day in 2021 – but the group has been hesitant to do so in the current climate.

City Index analyst Matt Weller has a technical look at oil prices following the OPEC+ deal.

WTI will remain in focus later today when the EIA crude oil stocks change is released at 1530 GMT, providing an insight into the level of demand in the US. US crude oil inventories released yesterday showed a 1.7 million drop in the week to January 1 to 491.3 million barrels.

Start trading the volatility in oil prices today.

Gold was trading at $1945 per ounce at midday, down 0.3% from the last closing price of $1950.

Have a look at our special report on the gold-silver ratio and how it could impact metals prices going forward.

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Market-moving events in the economic calendar

This afternoon there is Germany’s harmonized index of consumer prices at 1300 GMT before attention turns to the US, with ADP employment change at 1315 GMT and the Markit Services PMI at 1445 GMT. US factory orders are at 1500 GMT.

Central banks are also in play, with the governor of the Bank of England due to make a speech at 1400 GMT and the US FOMC minutes from its latest meeting to be released at 1900 GMT.

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.