Wall Street slumped on Tuesday after President Donald Trump called off talks on further coronavirus stimulus until after the election. Thus, equities reversed the robust gains from Monday and continued their wobble moves. Initially, stocks extended their bullish stance, but Trump’s tweets announcing the abrupt halt of negotiations spoiled the party.
Trump, who is still treated for COVID-19, ordered US Treasury Secretary Steven Mnuchin to stop negotiating with Democrats until after the election, when, according to Trump, he will win and then will approve a fair relief package. Still, his tweets were confusing. After calling off talks, the president urged Congress in a series of tweets to green-light “immediately” the $25 billion stimulus package for airlines and approve other relief packages as well, addressing his messages directly to House Speaker Nancy Pelosi. Trump claims that the Democrats’ $2.4 trillion stimulus bill promoted by Pelosi favors “high crime, Democrat states” and has less to do with COVID.
Trump’s decision and the way he handled it is a bit surprising, considering that it can undermine chances for his reelection.
The S&P 500 closed 1.40% lower, the Dow lost 1.34%, and Nasdaq fell 1.57%.
At the beginning of the session, Federal Reserve Chair Jerome Powell said that the recovery can end up in a downward spiral without government support and if the pandemic is not addressed effectively.
After Trump’s move, a Fed official said that the delay of the relief means much slower recovery.
Despite everything, Asian stocks are mostly bullish in early trading on Wednesday, recovering from the bearishness triggered by Trump’s tweets.
China’s markets continue to be closed for a holiday. They are closed for the entire week.
In Australia, the ASX/S&P 500 closed 1.25% higher after the government released its budget, which contains billions in spending initiatives and tax cuts.
At the time of writing, Japan’s Nikkei is down 0.08% but is on track to enter the positive territory. Hong Kong’s Hang Seng Index is up 0.83%, and South Korea’s KOSPI has inched up 0.72%.
Nevertheless, Europe is expected to open in the red, with German DAX being the only major index whose futures have edged higher.
In the commodity market, oil prices are retreating from their regional peaks after Trump’s cancellation of stimulus negotiations, as investors are worried that the lack of government support will hurt consumer demand for oil. Meanwhile, the American Petroleum Institute (API) reported an increase in crude inventories by 951,000 barrels for the week ending October 2, while analysts expected a drop by 831,000 barrels. Investors will monitor data from the US Energy Information Administration (EIA), scheduled for later today. Both WTI and Brent have lost over 1.1%, trading near $40 and $42, respectively. Still, some support persists as many producers in the US Gulf Coast have shut down operations to prevent damage from forming Hurricane Delta.
Gold has also been affected by Trump’s surprising move. The metal is now down over 0.80% to $1,892. Still, gold is now bouncing back from daily lows. The metal can’t leverage its safe-haven status even as several US states have reported record daily numbers of COVID infections and have introduced fresh restrictions.
In FX, the US dollar is up as risk appetite has been damaged by the US president. The USD Index is now up 0.10% to 93.833. EUR/USD is still up to 1.1740. Yesterday, European Central Bank (ECB) President Christine Lagarde said that Europe’s recovery looks more sluggish as the second wave of the pandemic knocks on the door, but the central bank is ready to inject more cash to support growth. She predicted that Europe’s output wouldn’t return to pre-COVID levels until 2022.
The pound is up against both the USD and the euro amid growing Brexit talks optimism in the 24th hour of negotiations between the UK and the EU. Still, the chances for a no-deal divorce are considerable.
