Dollar Weaker; Stocks on Pause – Will Stimulus Never Come?

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Markets flat
Australia Labor beats
Nikkei 1.78% Dax -0.09%
UST 10Y 0.66
Oil $42
Gold $1933/oz
BTCUSD $11293

Asia and the EU
AUD Labor data 114K vs. 30K eyed

North America Open
No data

Markets were quiet in listless August summer trade wth equities essentially flat while in FX the dollar was weaker across the board losing 50 against both euro and cable.

With little progress on the negotiations in Washington D.C., the bulls may be running out of excuses to take risk assets higher while the buck may be seeing a mild outflow of capital offer as investors remain uncertain about the US economic future.

The state of negotiations in DC remains grim with both sides widely apart and neither side willing to make much of an effort to compromise. That is leaving an increasingly smaller margin of error for the US economy to rebound strongly into the end of the year if the consumer does not have fiscal support as unemployment income streams run out and job opportunities remain scarce. This pressure point can become particularly acute in September when many PPP schemes run out and small businesses may be forced to do another set of layoffs.

For now, the market remains steadfast in its belief that some sort of a compromise will be reached and equities continue to move forward on momentum alone with S&P reaching all-time highs yesterday – the fastest recovery of a bear market on record. Still, with each passing day, the bulls are running out of ammunition and equities look ready for at least some sort of a correction if not action takes place in Washington.

On the currency front, the calendar was very quiet with only Australian labor data on the docket. Aussie jobs report beat handily with 114K jobs generated vs. 30K eyed. With both part-time and full-time jobs rising from the month prior. The reaction in the currency was muted however with a pop of only 10 pips or so in post news dealing as the market is looking past the July data to August numbers which could be a lot more problematic given the level 4 lockdowns in Victoria – the country’s second-most populous state. The Aussie remained steady, but just under the .7200 figure all night long.

The EURUSD, however, was much better bid rising 50 pips in early European trade as anti-dollar flows remained strong. The lack of coordination and cooperation in the US in contrast to a much-unified effort at stimulus in Europe continues to dog the greenback and EURUSD bulls remain focused on the key 1.2000 level in the weeks ahead which appears likely to be taken out if the dysfunction in DC remains.

Boris Schlossberg
Managing Director

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