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Dow Futures Gain Ahead of Biden Inauguration; Netflix Surge Boosts Nasdaq

Wall Street usually deliveries solid gains for a new administration in the White House, and President Elect Joe Biden will take office Wednesday with two key levers that should drive stocks higher in the coming months.

The Wednesday Market Minute

  • Global stocks power higher on U.S. stimulus hopes ahead of Biden inauguration as Yellen lays out economic ambitions of new administration.
  • Yellen tells lawmakers to 'go big' on stimulus, which, coupled with low rates, will help heal the 'scar tissue' left by the coronavirus pandemic.
  • The U.S. dollar slips lower in overnight trading as risk sentiment improves, while oil prices extend gain on bets for stronger domestic energy demand.
  • European stocks gain after better-than-expected earnings from Richemont and ASML, as well as the wave of gains triggered by Yellen's Tuesday Senate testimony.
  • U.S. equity futures suggest a higher open on Wall Street after quarterly earnings from Procter & Gamble, UnitedHealth Group, United Airlines and Morgan Stanley as well as President Elect Biden's swearing in at noon Eastern time in Washington.

Wall Street futures edged higher Wednesday, while the dollar slipped lower for a third consecutive session, as investors extended bets on deeper U.S. stimulus that should continue to support risk markets over the coming months.

Set against the backdrop of President Elect Joe Biden's Inauguration later today, Treasury Secretary nominee Janet Yellen, the former head of the Federal Reserve, laid out the economic vision of the new administration to lawmakers in Washington Tuesday that included aggressive spending, corporate tax increases, a market-determined dollar deeper Federal deficits to properly address the impact of the coronavirus pandemic.  

"Neither the President-Elect, nor I, propose this relief package without an appreciation for the country’s debt burden," Yellen said during her confirmation hearing. "But right now, with interest rates at historic lows, the smartest thing we can do is act big."

The S&P 500 has risen for eight of the past nine Presidents during their first 100 days in office, and with the Treasury prepared to spend trillions, and the Fed explicitly holding rates at near zero for at least the next three years, stocks looks set to be one of the major market beneficiaries in the coming months of the new Biden administration. 

Futures contracts suggest only modest gains to kick off the Wednesday session, however, with Netflix  (NFLX) - Get Netflix Inc. Report likely to drive the Nasdaq Composite higher after blasting through 200 million subscribers last year and vowing to turn cash flow positive by 2022 during its fourth quarter earnings presentation last night.

Stronger-than-expected earnings from Procter & Gamble  (PG) - Get Procter & Gamble Company (The) Report, UnitedHealth Group  (UNH) - Get UnitedHealth Group Incorporated (DE) Report, United Airlines and Morgan Stanley  (MS) - Get Morgan Stanley Report will likely provide the market with direction heading into the opening bell, with contacts tied to the Dow Jones Industrial Average now indicting a 110 point gain. 

Futures linked to the S&P 500 are priced for a 20 point advance, taking the benchmark past the 3,800 point level , while Netflix's 13.5% pre-market gain should help the Nasdaq into a 135 point head start when trading begins at 9:30 am Eastern time.

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Yellen's reflections on the dollar, as well as the need for countries to avoid weakening their currencies for competitive advantage, kept the greenback under pressure in overnight trading, where it fell 0.1% to 90.443 against a basket of its global peers.

Her comments on the levels of U.S. debt, which have surged more than 40% to $28 trillion under outgoing President Donald Trump, failed to provoke a reaction in the bond market, however, which is still being supported by the Fed's $120 billion in monthly purchases. Benchmark 10-year notes, in fact, slipped to 1.097% in early European dealing.

The declines came alongside solid gains for regional stocks, which were boosted by the hope of deeper U.S. spending and stronger-than-expected earnings from luxury goods maker Richemont and chipmaker ASML, the latter of which added to bets on a so-called 'super cycle' for semiconductor stocks in the years ahead. 

Europe's Stoxx 600 was marked 0.66% higher in the early hours of trading, while Britain's FTSE 100 added 0.28% even as the pound climbed to 1.3690 against a weaker U.S. dollar.

Overnight in Asia, stocks in China rebounded from Tuesday's declines even as Beijing announced stricter COVID restrictions in the wake of rising infections, possibly powered by the virus' new variant, in the Chinese capital.

The gains helped the region-wide MSCI ex-Japan index rise 0.95% heading into the final hours of trading, while Japan's Nikkei 225 slipped 0.38% from its three-decade high to close at 28,523.26 points.

Oil prices powered higher, as well, thanks to the weaker dollar and hopes that stimulus spending will boost U.S. energy demand, taking crude prices to their highest levels in nearly 11 months. 

WTI futures contracts for March delivery were marked 52 cents higher at $53.50 in early European trading, while Brent contracts for the same month, the global benchmark, added 44 cents to $56.35 per barrel.