Negotiations are off … no, they’re on
President Donald Trump’s tweet early in the week pulling the plug on negotiations for fiscal relief to support businesses and individuals prior to the election jolted markets. Equities retreated and bond yields fell as investors sought the safety net provided by bonds. A lack of support would hurt the unemployed and could raise the specter of unemployment for those currently working, curbing their appetite for spending.
The announcement came on the heels of Federal Reserve Chair Jerome Powell’s speech warning that the risk to the economy of under-delivering on the fiscal front was much greater than that of over-delivering. A recent survey of institutional investors by RBC Capital Markets found that just over 60 percent of respondents believe additional fiscal stimulus is needed for the U.S. economy to fully recover, and close to half believed a bailout package would come in Q4.
Stimulus of at least $1 trillion is widely seen as desirable by economists. Negotiating positions in Congress had been staked out, with the Democrats in the House of Representatives recently passing a $2.2 trillion package and the Republicans in the Senate suggesting a $600 billion package, pointing to the congressional chasm. The White House has proposed a $1.6 trillion deal.
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