The $2 Trillion Question
The health of the US President will be a preoccupation in the days ahead as official information conflicts with leaks in an administration that's earned a reputation for misinformation. The initial jolts in markets highlight the emotion in the market but baring the death or incapacitation of the President, it's not going to be a major market mover. The election will eventually have consequences but given the poll misses in recent years, market participants are reluctant to shift positions until after the votes are counted. For what it's worth, the latest polls show a rising chance of a Democratic sweep but they could shift in the days on Trump's diagnosis.
It's worth noting that so-called conventional wisdom among the investor community is starting to consider a Biden victory as a posistive for risk appetite as he maintains the 14-point lead over Trump.
What's less fuzzy is the scope for more US stimulus. Talks appeared dead two weeks ago but a report Friday confirmed something that we've suggested: the White House is pushing for Republican compromise in the hope that it will boost Trump's chances. That likely means something closer to the Democrats ask of $2.2 trillion rather than the $1.5T in the latest White House offer. The Senate could still block it but McConnell said Friday after the market close that a deal was “getting closer” in a hint that he's on board.
The funds, which will include new unemployment benefits and another $1200 cheque for most Americans, will be the decisive factor in the path of the US economy through January. The package could also have critical knock-on effects for global demand. It was clear on Friday that equity markets were trading around these headlines rather than Trump's health. Expect that to continue.
As for FX, the currency market shrugged off the drama with surprising ease on Friday with Brexit and European COVID headlines leading the market.Stimulus talks will also overshadow data on Monday but the current trajectory of the economy is also highly uncertain.
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