Stocks Bet on a Deal

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Cable gives up the Sunday gap
Equities bet on stimulus
Nikkei -0.17% Dax 0.86%
UST 10Y 0.90
Oil $47
Gold $1846/oz.
BTCUSD $19197/oz.

Asia and the EU
EUR CPI -0.2% vs. -0.2%

USD IP 9:15
USD Economic Optimism 10:00

Equities were well bid in Asian and early European trade with stock index futures up by nearly 50 basis points as investors remained optimistic that some sort of fiscal stimulus package would be passed before Congress closes its session for holidays.

The compromise bill now put forth by a bipartisan panel of Senators separates the pure aid provisions from the two points of dispute – aid to states and COVID liability protection for corporations.

Although the current proposal is far more modest than the fiscal packages floated earlier in the year (at $700 Billion it is only about one third as large) it nevertheless is viewed by the market as better than nothing at a time when many US citizens are on the precipice of homelessness given the contraction of economic activity due to fresh wave of lockdowns.

There is enormous pressure on policymakers to extend the current benefits before they leave Washington and indeed if Congress does nothing the policy error could be very costly for the US economy in Q1. Many experts have noted that while the WFH segment of the US economy continues to perform well, much of the physical retail sector is on the verge of bankruptcy and the likely credit contraction that would result from a massive wave of liquidation in the sector would have large negative knock on effects for the whole US economy.

With no significant eco data on the docket today the North American trade is likely to be driven by headlines from Washington DC. If there is lack of progress as the holiday deadline approaches, the market reaction which so far has only been mildly negative to every disappointment, will turn far more violent if investors become convinced that there is no fiscal deal before the end of the year.

Boris Schlossberg
Managing Director

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