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On early Monday, Dow Future surged on hopes of an imminent CARES Act 2.0 as U.S. House Speaker Pelosi, who effectively controls policy-making (rather than Trump) sets the Tuesday deadline for CARES Act 2.0 before the Nov election.
As expected, after months of political drama, CARES Act 2.0 may be a reality for around $2T just ahead of the Nov 3 election due to political compulsion of both sides (RNC/DNC). In that scenario, Dow may again rally towards the recent high, but may also correct from there on the election and COVID uncertainty. As an effective and safe COVID-19 vaccine is still months away and the U.S. election result may not be clear on 3rd Nov, the risk trade may be on the back foot after the CARES Act 2.0 rally. The effect of fiscal stimulus is generally mixed on currency (USD), but positive for Gold. But if COVID-19 intensifies further, USD will be also buoyed due to demand for cash which will be negative for Gold.
On the big picture, an absolute win by Biden will be positive for USD (less interference on Fed/monetary policy and fiscal prudence/tax hikes). Also under Biden, there will be less trade/cold war narrative against China/EU and thus it should be positive for equities also (Dow). And at the same time, in reality, Biden may not go for his super-rich/corporate tax hikes plan until at least 2024 as the U.S. economic recovery will be fragile till then. Trump’s 2017 tax cuts are also set to expire in 2025 and thus Biden may wait for full economic recovery and next election (2024) for any tax hike to reduce surging fiscal debt. So, even after any knee-jerk reaction due to a trifecta of Biden win, Dow should recover swiftly.
On the other side, although Trump’s win is positive for reflationary trade, the ‘America First’ Policy, ‘Keep America Great’, and ‘Promises Made, Promises Kept‘ election campaign stance may be a repetition of his 1st term in the Oval office. The market will dance on Trump’s tweets.
On Sunday Pelosi also issued an official statement: Dear Colleague: Update on Effort to Reach Coronavirus Relief Agreement before Election
On Friday, the number of coronavirus infections reached a staggering 69,000 cases, the highest daily number in months. As infections soar and deaths increase, we must urgently act to protect the lives and livelihoods of the American people. Coronavirus relief negotiations proceeded over the weekend, with Secretary Mnuchin sending awaited language on testing. While there was some encouraging news, much work remains.
The White House had assured Democrats that they would accept our language on testing with a “light touch.” Unfortunately, as the committees of jurisdiction review the White House’s language provision-by-provision, it has become clear that these changes are not a light touch but instead, a deep dive.
These unacceptable changes include, but are not limited to, the White House’s refusal to commit to a science-based national plan for testing, tracing, and treatment to crush the virus. The White House has removed 55 percent of the Heroes Act’s language for testing, tracing, and treatment. Especially disappointing was the elimination of measures to address the virus’s disproportionate and deadly impact on communities of color. The White House does not appreciate the need to direct resources to culturally competent contact tracing.
Instead of recognizing the need for a strategic plan, they have changed words including “shall” to “may,” “requirement” “recommendation,” and “strategic plan” to “strategy.” These changes make the funding a slush fund for the Administration which “may” grant or withhold rather than a prescribed, funded plan to crush the virus. It is important to note the impact in terms of the disparity facing communities of color: a Latino child is eight times more likely to have to go to the hospital because of COVID-19 than a white child, and a Black child is five times more likely. We want all of our children protected.
Children are further affected negatively in the White House’s refusal to expand the Child Tax Credit, Child and Dependent Tax Credit, and the Earned Income Tax Credit while continuing tax benefits for some of the wealthiest in America. This is especially disappointing in light of reports this weekend that poverty has grown by six million in the past three months as CARES benefits are exhausting, meaning that eight million Americans are now living in poverty. Our proposal would reduce childhood poverty significantly.
Children are also shortchanged by the refusal of the Administration to increase child care provisions. If children are not able to go to school, parents are not able to go to work. Child care is therefore essential. At the same time, everyone wants children to be able to go back to school safely. This takes money, and the Republicans are still falling short on what is needed to provide the separation, ventilation, sanitation, and especially, funding for teachers and support staff to enable this to happen.
Funding for schools comes largely from state and local government, and the Administration continues to fail to meet the well-documented need for funds to protect frontline workers in health care, first responders, sanitation, transportation, food workers, teachers, and others, and to prevent service cuts to struggling communities.
Sadly for our country, the Administration wants to undermine the Census, unless we can act legislatively. The Administration and the President’s appointees to the Courts have decided in his favor to hold up the count in the Census. At the same time, the Administration refused to allow time for the count, once hopefully resumed, to be accurately reported to the Congress.
These are a few of the issues that were discussed this weekend, but they are not exhaustive of our concerns. We are hoping to find common ground. I am optimistic that we can reach an agreement before the election. To that end, we are writing language as we negotiate the priorities so that we are fully prepared to move forward once we reach an agreement.
Updates will be ongoing as our Chairs continue to review language for Liability and OSHA, small businesses, health care providers, and elections. Hopefully, we will have more progress to report on our conference call tomorrow.
Technical Outlook: SPX-500, DJ-30, and NQ-100 (Futs):
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