Whilst markets have seemingly been hopeful (or should that be “duped”?) by the apparent signs of progress in the fiscal stimulus negotiations, as yet, there is nothing to show for it. We are now just one week before polling day for the US Presidential and Senate election (where 35 of the 100 seats are up for re-election). Despite the Democrat House Speaker Pelosi remaining “optimistic” there is an apparent fatigue setting in for market sentiment. Agreement will not happen before the elections and after that, it is open to significant uncertainty on the results. This lack of certainty on fiscal stimulus, coming as COVID-19 infections hit record levels in the US and the second wave takes full force across Europe, is leaving markets increasingly nervous. Equities felt the full force of these concerns yesterday as Wall Street fell sharply, also with the dollar gaining strength on a safe haven bias. There is a slight unwind of these moves early today, but how far this develops in the coming days will be shown through bond markets. A flattening of the US yield curve (which continues this morning with US 2s/10s spread narrowing) would reflect risk aversion. Wall Street futures have stabilised early today, but if bond yields continue to fall (and curve flatten), the dollar will climb and market sentiment will favour safe havens (such as the yen and the dollar).
Wall Street closed with strong losses yesterday (albeit off session lows) with the S&P 500 -1.9% at 3401. US futures have found some support early today (E-mini S&Ps +0.2%) which has helped Asian markets consolidate (Nikkei -0.1%, Shanghai Composite +0.1%). European indices seem to be looking supported too with FTSE futures +0.2% and DAX futures +0.5%, but can this last? In forex, there is little real direction to speak of, aside from a shade of USD underperformance (aligned to a tick higher in equities sentiment). In commodities, this USD slip back is helping gold to tick higher (+0.2% ) and silver (+0.7%), whilst oil is also rebounding (+0.7%) after sharp losses yesterday.
It is a big US theme to the economic calendar today, but don’t forget the US announcements are an hour ahead this week as the daylight savings time shift is not until next weekend. US Durable Goods Order