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Markets stuck in a swamp of stimulus talks

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By Han Tan, Market Analyst at FXTM

Equities are stuck in limbo, as investors continue monitoring the status of the next round of US fiscal stimulus, while the final presidential TV debate before election day passed with little immediate sway on financial markets.

Asian benchmark indices were mixed and US equity futures were little changed on Friday. The Dollar index is hovering just above the 93.0 mark, while spot Gold is hanging on to the $1900 handle.

The next US fiscal stimulus package is arguably the only hope for an immediate lift to US stocks before November 3. However, given the protracted and apparently laborious nature of the negotiations, the talks in Washington risk being little more than a show-and-dance ahead of the high-stakes election.

While a deal before the defining day would be a positive surprise for markets, the likelier scenario appears to be a post-election event, especially considering the Republicans’ resistance in the Senate.

What’s clear is that a fresh injection of much-needed financial aid for the US economy is necessary, even though US initial jobless claims posted another sub-800,000 weekly reading, having declined in three of the past four weeks. Continuous jobless claims fell below 9 mln for the first time since March, though they still remain far higher than pre-pandemic levels.

Amid these signs of a recovery in the US jobs market, the revival could be threatened if more financial support isn’t rolled out soon, especially as the US continues to struggle keeping the pandemic under control.

Investors are likely to stay neutral in the markets, gripped by the looming political risks with the US elections less than two weeks away. That said, the VIX futures contract, which extends past voting day through until mid-November, shows that markets are expecting relatively lower volatility compared to September’s levels.

Still, the prudent investor should be prepared for the possibility of heightened volatility in the markets immediately following November 3, especially in the event of a delayed official outcome to the results.

Should market participants be met with an extended period of political uncertainty after polling day, that could result in a surge of risk aversion that ensures safe haven assets are well bid.

 

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