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Dow crumbled Thu on a rejection of Trump's 'skinny' corona stimulus

calendar 11/09/2020 - 16:51 UTC
  • On mid-Friday, Dow surged on a show of political unity between Biden (Democrats) and Pence (Republicans) on the 9/11 anniversary
  • Upbeat report card from Oracle and Peloton also boosted the sentiment
  • Hopes for an early corona curve flattening as U.S. hospitalizations reduced significantly
  • Higher core CPI at +1.7% indicates economic momentum, while the Fed will allow to run it a little hotter in the coming years without any rate action

The U.S. stock market (Dow Jones Industrial Average) closed around 27534.58 Tuesday, stumbled -1.45% (-406 points) on suspense over mini corona stimulus as Senate Democrats blocked a GOP coronavirus bill on Thursday that included PUA extension in part amid a deep political stalemate over the next relief package. U.S. Senators voted 52-47 on the roughly $500B Republican bill, (skinny stimulus) which marked the first coronavirus-related legislation the chamber has voted on since it passed a $484B package in April.

The legislation needed 60 votes to advance but came up short: 52-47. All Republicans voted ‘yes’ except for one (Paul), who joined with all Democrats present who voted ‘no’. The legislation would have given an extra $300 per week in PUA through DeC’20, the second round of PPP funds to MSMEs worth $258B and $105B for schools and colleges, $20B for farmers, $10B for the US Postal Service, $10B for childcare assistance and $47B for vaccines and testing. Democrats want to renew a $600 weekly supplement that expired in July. Trump in August signed an executive order allowing a $400 weekly boosts if states provide in $100.

This again shows that Trump (Republicans) needs at least 7-Democrats (dissident) votes for any partisan legislation to be passed by the Senate to forward it to Congress, where it’s almost impossible to pass the same without significant Republicans support. In other words, Trump is a minority President and the actual control is with the U.S. Congress (Pelosi), while Trump has the last executive power to accept or reject any legislation forwarded by Congress.

So, unless there is bipartisan legislation over the corona stimulus bill 4.0, including part/full extension of PUA (Pandemic Unemployment Assistance), the same may not see the day of the light amid political squabbling at Capitol Hill.

Now looking ahead, the U.S. political and election uncertainty may ensure more policy paralysis in the White House/Capitol Hill. The market does not like such political & policy uncertainty. Thus, ahead of the Nov election, Dow may correct more. On Thursday, Dow was also dragged by techs and energies (as oil tumbled on lingering worries about rebalancing).

Also, mixed U.S. jobless claims dragged the risk-on sentiment:

Flash data shows that the number of Americans filing for unemployment benefits was unchanged at 884K in the week ended 5th September, the same as an upwardly revised 884K in the previous week and above market forecasts of 846 thousand. It is the first time since March that claims stay below 1M for 2-consecutive weeks although the number still remains elevated. The 4-week moving average was 970.75K, a decrease of 21.75K from the previous week. Meanwhile, continuing claims went up to 13.38M from 13.29M, higher than the forecasts of 12.925M.

 

 

Overall, this week’s jobless claims were mixed but stable as the worst of the corona recession may be already over in April. As per BLS reference week for Aug (9-16th), the average continuous jobless claims were around 14625K. The PUA figure was around 14692K. Thus, assuming the civilian workforce around the same Sep levels of 160838K, the August unemployment rate should flash around 9.1% after Sep’ 8.4%.

 

 

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

 

 

 

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