Morning Markets Brief 10-7-2020

Summary and Price Action Rundown

Global risk assets are rebounding this morning after yesterday’s swoon as investors struggle for clarity on the US political and policy outlook amid mixed messages from President Trump over the pandemic relief negotiations. S&P 500 futures point to a 0.7% higher open after the index lost 1.4% yesterday on the President’s apparent pullout from stimulus talks. The late afternoon decline erased solid intraday upside and cut the S&P 500’s year-to-date gain to 4.0%, which is more than 6% below early September’s record high. Equities in the EU and Asia were gently mixed overnight. Amid garbled messaging on the fiscal stimulus front, the dollar is steady while longer-dated Treasury yields are turning higher, with the 10-year yield at 0.78%. Brent crude prices remain choppy, falling back below $42 per barrel ahead of US stockpile data.

President Trump Sends Conflicting Signals on Stimulus

Yesterday, in his first full day back at the White House following his recent hospital stay for Covid-19 treatment, President Trump halted negotiations with House Democrats over the pandemic relief bill and then took to Twitter to push piecemeal stimulus measures. After apparently pulling out from negotiations yesterday afternoon, President Trump sent a barrage of tweets calling for House Democrats to offer support for airlines, renewed funding for the Paycheck Protection Program (PPP), and $1,200 stimulus checks for individuals. Analysts are awaiting a response from Speaker Pelosi, but House Democrats have refused similar White House offers of segmenting relief measures over a series of bills. For context, President Trump yesterday announced over Twitter his rejection of the recently passed $2.2 trillion stimulus package from the House and halted further negotiations until after the November election. He concluded his tweet with upbeat messaging on the economy and a call for the Senate to prioritize confirmation of Amy Coney Barrett to the Supreme Court. Both the S&P 500 and the Nasdaq dropped 2% from their intraday highs after the announcement as investors’ recently rising hopes for further near-term economic support from the government were extinguished. President Trump’s decision seemed to contrast with his tweet from Walter Reed hospital on Saturday in which he stated that the economy “wants & needs stimulus” and pushed for both sides to “work together” toward swift agreement on a package. The newfound push over the weekend from both sides on the stimulus followed the grim announcements from both American Airlines and United Airlines of nearly 32,000 upcoming furloughs between the two companies absent direct government stimulus. Speaker Pelosi has issued statements to both airlines assuring that relief will come either in the standalone form of Rep. DeFazio’s (D-OR)  bill, which extends Paycheck Protection Program (PPP) to the airlines for six months, or as part of the comprehensive package still to be agreed upon.

Fed Minutes to Provide Additional Insight as Monetary Stimulus Bets Rise

The spotlight now shifts back to the Fed, as recent communications indicate that their already downbeat economic projections had assumed additional fiscal support. The minutes from the September FOMC meeting, which are being released today, are expected to feature some incremental details regarding the Fed’s revised interest rate projections with its new and more ambitious inflation targeting and full employment mandates. However, attention is already shifting to the potential for additional stimulus, likely in the form of augmented asset purchases, after the apparent breakdown in negotiations between the White House and House Democrats over the pandemic relief bill. In a speech yesterday, Fed Chair Powell redoubled his calls for more fiscal stimulus to shore up the recovery, stating that fiscal and monetary policy responses have so far underpinned a “strong but incomplete recovery in demand,” and emphasized that the Fed’s current economic outlook assumes additional government support measures. His strong and continued advocacy of more fiscal spending has been echoed almost unanimously by the other members of the FOMC.

Additional Themes

US Political Uncertainty in Focus Ahead of Veep Debate – With the polls showing Joe Biden extending his lead over President Trump, the stakes for tonight’s Vice Presidential debate are high for both sides. Lingering health concerns and the Covid-19 containment measures on display in the debate will amplify the tension in the venue, particularly given the news in recent days that more White House staff are testing positive for the virus.

House Democrats Push Big Tech Antitrust – The House Antitrust Subcommittee issued a report yesterday recommending a sweeping new approach to regulating the US IT giants that it describes as “the kinds of monopolies we last saw in the era of oil barons and railroad tycoons” with “too much power.” Recommendations included limits on the areas of business in which each company can operate, which could require a breakup of the giants. Amazon, Apple, Facebook, and Google shares underperformed yesterday, though not dramatically, and are broadly positive again this morning, suggesting that investors remain broadly unconcerned over these ongoing inquiries into anticompetitive practices by these firms.