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Dow almost flat Thu on hopes & hypes of CARES Act 2.0

calendar 25/09/2020 - 14:21 UTC

The U.S. stock market (Dow Jones Industrial Average) closed around 26815.44 Thursday, edged down +0.20% (+52 points), almost flat on hopes & hypes of CARES Act 2.0; Dow jumped over +300 points on a report that a new round of CARES Act 2.0 negotiations will resume soon amid growing concern over a resurgence in coronavirus cases around the globe. But Dow stumbled over -550 points from the session high on another report, suggesting no talks scheduled between the U.S. Treasury Secretary Mnuchin and the House Speaker Pelosi.

On early Asian Friday, Dow Future further slumped almost -300 points on political war over CARES Act 2.0, but the market is still hopeful at least around $2T fiscal stimulus in CARES Act 2.0, a midway between Trump (RNC) and Pelosi (DNC) plan by early Oct, just before the Nov election.

Mnuchin said Thursday in his Senate that another targeted pandemic relief package is still the need of the hour. Mnuchin said he and Speaker Nancy Pelosi are in touch over the extension of the stop-gap spending bill (CR-continuing resolution) and also have agreed to revive negotiations over the stalled CARES Act 2.0: The president and I want more support. I've probably spoken to Speaker Pelosi 15 or 20 times in the last few days on coronavirus relief, and we've agreed to continue to have discussions about the CARES Act. We will be hopefully soon to the table with them, very soon, showing you where our money wouldn't be spent.

Pelosi also said Thursday that she expected negotiations with the White House (Republicans) to resume shortly: We'll be hopefully soon to the table with them. As per reports, Pelosi is readying a new, scaled-down package for CARES Act 2.0 that would include assistance to airlines, restaurants, and small businesses for around $2.4T against an earlier version of $3.5T and said she is willing to move to in negotiations with the White House (Trump), who have called for a smaller bill ($1.5T).

Amid all these political squabbling over CARES Act 2.0, the Fed Chair Powell is urging repeatedly for an immediate financial relief package. As the time is fast running out before the Nov election, Powell warned senators that a failure to follow up on the success of the CARES Act 1.0 could cause structural economic devastation:

If people start to run through it what resources they have, they're---they're at risk of losing their homes or having to move out of the place they're renting, maybe move back in with family, and those things are not necessarily good for controlling the spread of the virus. The CARES Act really did a lot of good in putting money in people's hands and keeping them in their homes and keeping them spending, keeping them in one piece. Going forward, more (stimulus) of that may be needed. The Congress and the Federal Reserve both need to stay with it is working to bolster the economic recovery

Dow is also under stress on growing election uncertainty as Trump repeatedly indicating that he may not vacate the White House even if the Nov election shows him defeated as he suspects massive frauds in the postal ballot system. The market is concerned that the Nov election outcome may be eventually decided by the U.S. Supreme Court, resulting in political and policy uncertainty for months.

Now from politics to economics, there was a deluge of Fed speakers who have spoken about how the economy could recover in the future from the corona recession. Fed officials doubled down on efforts to convince the Wall as-well-as Real Street they will keep monetary policy easy around ZIRP for years to allow unemployment to fall and until inflation (core PCE) gets to at least 2% and stays there.

The St. Louis Fed President Bullard sounded quite optimistic and said on Thursday that the U.S. economy could end the year with virtually no loss of GDP loss given the amount of fiscal spending already provided and the ongoing adaptation of businesses and households to coping with the coronavirus pandemic.

As per some survey, almost 25% of U.S. blue-chip corporates CEOs said their businesses have recovered or will have by year-end. The U.S. household net worth surged in Q2 to surpass the pre-pandemic peak despite the corona recession as a rebound in stocks buoyed Americans' wealth. Housing market data released on Tuesday showed the sector continued to outperform the overall economy. Existing home sales increased by 2.4% to a seasonally adjusted annual rate of 6 million units last month, the highest level since December 2006.

But Thursday's report from the Labor Department showed the number of Americans filing new claims for unemployment benefits unexpectedly increased last week, while PUA claims declined a bit. The soft/mixed data on jobless claims dragged the market earlier Thursday.

The Markit PMI data showed U.S. business activity nudged down in September, with gains at factories offset by a retreat at services industries, suggesting a loss of momentum in the economy as the third quarter draws to a close and the COVID-19 lingers, affecting the consumer-facing service industry.

Technical Outlook: SPX-500, DJ-30, and NQ-100 (Futs): Updated 09/09/20




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