Trump calls off fiscal stimulus talks
All the noise overnight came from the US president, breaking off stimulus talks with congressional Democrats and announcing his intentions instead to enact a new package after he wins the elections. The main sticking point appears to have been aid to state and local governments whom President Trump labelled poorly run by Democrats. The politicisation of the stimulus package was almost inevitable. It came after the Federal Reserve chairman earlier in the day reiterated the Fed had done most of what it could, and that action needed to come from the fiscal side.
The effect on markets was immediate and predictable, as the street had priced in a positive outcome to talks for the past few sessions. Equity markets fell aggressively; the US dollar rallied with pro-cyclical currencies, notably, coming in for negative attention. Energy gave up some of its gains and gold plummeted with equity markets, suggesting that the direct correlation continues to make its presence felt when stock markets have a terrible day. Notably, the S&P 500, Nasdaq and Dow Jones all traced out bearish outside reversal days. The latter, in particular, bears monitoring by readers.On a positive note, I do not believe hopes of a stimulus deal are now gone forever. One of Mr Trump’s favourite negotiating tactics, judging by past actions, is to walk away from the negotiating table abruptly. The intention being to frighten the other side into concessions. Whether that none-too-subtle approach from isolation in the White House will work this time is up for a more orderly debate than a presidential one. With so much hope pinned on the stimulus agreement coming to life though, the potential market correction could have some way to run, especially given the technical developments on the leading US stock indices.
Lost in the noise of Trump, and given its decibel level, unsurprisingly so, was a development that will send US Big Tech into a cold sweat. I have been monitoring this situation for the past few days, and today the House Judiciary Antitrust Committee released its final report that slammed the likes of Facebook, Apple, Amazon and Google for anticompetitive behaviour. It recommended changing US laws to make it easier to break up giant tech companies. The committee is dominated by Democrats but has Republican elements who endorsed some of the reports less draconian recommendations.
With opinion polls suggesting the Democrats have a real chance of a clean sweep in November’s elections, Big Tech should be rightfully concerned. Standard Oil style breakups could be a real possibility under that scenario and bringing Big Tech to heel likely has cross-party support. Being irrationally exuberant on the FAANGs ahead of the election could prove to be a bear trap, with the potential for some painful filling down of fangs a real possibility afterwards, in this scenario.
China continues its week-long holiday today, and the Asian data calendar is light to non-existent. Asian markets will likely spend the day digesting the implications of a no US stimulus agreement, content to trade off the morsels thrown out by President Trump’s Twitter account.
The FOMC minutes will be released later on Wednesday. There are unlikely to be any surprises amongst them. Still, markets may gain an insight into just how concerned the committee was for the growth outlook in a no fiscal stimulus scenario. That becomes more relevant given the overnight developments.
Wednesday also features the vice-0residential debate. Typically a side-show in most elections, it has assumed much greater importance this time around, given President Trump’s brush with Covid-19, and the fact that either presidential winner will be a one-term president. America and the world will gain an insight into their possible successors tomorrow, with the differences between the candidates never starker. A strong performance by both candidates will be vital for both this election and possibly the next.
