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Some Asset Market Reactions

Summary:
Stock, currency and bond markets respond (up, up, yield up) on news of likely Democratic control of the Senate Figure 1: DJIA, as of noon CST, 1/6/2021. Source: Tradingeconomics.com. Stock market jumps – suggesting expectations of higher present value of dividends (despite perhaps higher corporate taxes, see this post). Interestingly, the dollar jumps as well, with some zig-zagging. This might reflect revised expectations of faster economic growth. Figure 2: DXY trade weighted value of USD, as of noon CST, 1/6/2021. Source: Tradingeconomics.com. Interestingly, the rise of the 10 year Treasury yield – by around 15 bps – suggests a yield curve steepening that would be associated with an upward revision in growth (it’s also consistent with a greater budget deficit). Figure 3: Treasury 10

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Stock, currency and bond markets respond (up, up, yield up) on news of likely Democratic control of the Senate

Some Asset Market Reactions

Figure 1: DJIA, as of noon CST, 1/6/2021. Source: Tradingeconomics.com.

Stock market jumps – suggesting expectations of higher present value of dividends (despite perhaps higher corporate taxes, see this post). Interestingly, the dollar jumps as well, with some zig-zagging. This might reflect revised expectations of faster economic growth.

Some Asset Market Reactions

Figure 2: DXY trade weighted value of USD, as of noon CST, 1/6/2021. Source: Tradingeconomics.com.

Interestingly, the rise of the 10 year Treasury yield – by around 15 bps – suggests a yield curve steepening that would be associated with an upward revision in growth (it’s also consistent with a greater budget deficit).

Some Asset Market Reactions

Figure 3: Treasury 10 year yield, %, as of noon CST, 1/6/2021. Source: Tradingeconomics.com.

Note: Time scale is one year on Figure 3.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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