Stimulus Fight Takes a Turn

08/10/2020 10:38 am EST


Adam Button

Co-Owner and Managing Director,

Negotiations over the next stimulus package has taken a turn with the Executive order announced over the weekend, reports Adam Button.

The market continues to use its imagination surrounding U.S. stimulus negotiations, but at some point, fear will creep in.

After the U.S. Employment Situation Report jobs report on Friday, the market has shifted to focusing on U.S. stimulus talks. As we wrote last week, the market is sensing the strong hand that Speaker Pelosi has and her determination to push through extended employment benefits.

Republicans have proposed a $1 trillion package that includes a drop in special benefits to $200/week from $600/week, but Democrats are pushing for no change through year-end. Initially the thinking would be that they would split the difference, but Pelosi believes she has the leverage to get nearly everything Democrats want. She estimates voters will blame the President and his party if a deal isn't struck.

So far that's led to a deadlock. Pelosi said there will be a deal at some point, but she doesn't appear to be in any rush to lower her demand from $3.4 trillion in spending. Meanwhile, the White House announced an executive order to delay payroll tax collection and other stimulus measures in an attempt to appear proactive, or to handcuff Democrats into making the waiver permanent when it ends.

There's no doubt the lack of benefits is already hitting consumer wallets and it could quickly sap overall spending. How much patience does the market have?

Underpinning USD bears was last week's US Treasury's quarterly refunding announcement for August to October. Coupon sales were larger than expected and will be a record $112 billion next week. Swallowing all that supply pushed U.S. 10-year Treasury yields up 3.6 basis points to 0.547%. The rebound gave 10-year T-notes some breathing room ahead of the key 0.50% level.

The energy market is another spot to watch. Crude oil looked like it was breaking above key resistance as WTI rallied to $43.50, but the break couldn't be sustained in a decline back to $42.

The Australian dollar (AUD) was the top forex performer while the Swiss franc (CHF) lagged.

Ashraf has come up with a Bottom-Top approach to updating a Time-Price call on gold, silver and the U.S. Dollar USD. He dissects the triangularity of USD-pairs, U.S. Dollar Index and gold with a time-based spin.

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