Stimulus economy packages: hopes and concerns
Investors are now focused on the U.S. Presidential election, the U.K. and EU Brexit negotiations, as well as a second wave of the coronavirus.
The breakdown below will shine a light on the market's current volatility.
At the beginning of last week, following his discharge from the hospital, President Trump suspended negotiations on a new stimulus package until after the election. President Trump then reconsidered the idea and renewed interest in striking a deal strictly for the aviation sector. Markets responded positively as the SPX500 rose 3.8% and the NASDAQ rose 4.6%, which was the greatest increase since July. As the November U.S. election approaches, it becomes increasingly difficult for Republicans and Democrats to make resolutions supported by both. Despite this, many understand the negative results of delaying a stimulus package. It's possible to see a partial deal before the election.
The closer the November presidential elections are, the more difficult it is for representatives of the Republican and Democrat parties to make joint decisions in Congress. Even though it's mostly political posturing, everyone understands that the delay in making specific decisions on stimulus negatively affects the country's economy. We will probably see at least a partial implementation of the incentive bill before the beginning of November this year.
Brexit negotiations should be described as a hopeful yet concerning. Last week, the pound was at the mercy of many conflicting reports, making it highly volatile. A summit meeting will be held this week between European leaders to discuss trade with England. Investors responded positively, and the pound rose accordingly to 1.30500. It's difficult to predict further upwards movement due to unsatisfactory coronavirus statistics in the U.K. and Europe's reinstallation of restrictive measures.
The EURUSD pair rose this past week to 1.18200 due to the weakening of the U.S. dollar. President Trump backed a 1.8 trillion dollar aid package, which his party opposed because citing the possibility of losing Republican support in the election. The uncertainty regarding the stimulus package makes the dollar a safe-haven asset while adding volatility to the EURUSD, AUDUSD, USDJPY, and NZDUSD pairs. Investors are betting on former Vice President Joe Biden to win the presidency and offer a larger aid package. Recent polls suggest Biden is leading by a considerable margin.
Gold (XAUUSD) increased to 1,930 USD per ounce. The reason is, again, the weakening U.S. dollar amid investors' hopes for a stimulus package for the U.S. economy, growing political uncertainty, and concerns of a second wave of the coronavirus. However, gold appears overbought with a possible downwards correction towards 1,918, 1,906, or even 1,890.
There was a heavy load of information regarding oil (XBRUSD) last week. The production of 1 million barrels per day in the Gulf Coast of the United States was halted due to Hurricane Delta's threat. Oil workers in Norway continued strike has cost the country roughly 300,000 barrels per day in production. OPEC+ countries have begun talks on canceling the planned production growth for 2021. China plans on significantly reducing crude oil imports for October. The demand for crude may further decrease with the rise of coronavirus cases across the globe. Oil prices are set to decline for the reasons mentioned above, plus Libya's increase in production, to possible support levels of 42.21, 41.69, or 41.35 USD.
In the coming week, investors will be awaiting reports from the Harmonised Index of Consumer Prices in Germany, U.K. Claimant Count Change, Germany ZEW Economic Sentiment, U.S. Core Consumer Price Index, U.S. Producer Price Index, U.S. Initial Jobless Claims, and the eurozone Consumer Price Index.