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Trump walks away from stimulus talks

USD/CAD – Daily Candlesticks
Source: GKFX / MT4 (October 7th, 2020)

USD/CAD made a bullish outside day pattern on Tuesday after rebounding from resistance-turned support at the 50-day moving average and the 1.325 price level.
 

TAKEAWAYS


•    Stocks drop after Donald Trump ends stimulus talks until after election
•    Treasury yields reverse lower from a 4-month high
•    Gold sees steep losses while dollar bid as a haven
•    DAY AHEAD: FOMC minutes, Vice Presidential Debates
 

GURU WISDOM


 “Earn as much as you can, save as much as you can, invest as much as you can, give as much as you can.” - John Wesley
 

MARKETS


Stocks on Wall Street turned sharply lower on Tuesday afternoon following a shock tweet from the President of the United States ordering the end of new stimulus talks with House Democrats. Tech stocks were among the biggest fallers on renewed risks of forced breakup. Republican Congressman Ken Buck said the recommendations were thinly veiled plans to breakup big tech for monopoly powers. European markets closed higher before the Trump tweets as the President returned to the White House from his 3-day stay in hospital for COVID-19 treatment.

We haven’t been talking about the bond market recently because it has been so flat. That changed on Tuesday when US 10-year yields jumped to a 4-month high before being flattened again on the stimulus news from Trump. 

EUR/USD briefly touched 1.18 but the US dollar was bid as a haven asset, sending the euro back lower again. GBP/USD found resistance at 1.30 once again and quickly fell below 1.29.

The price of gold was slammed lower by $40 per oz taking it to fresh lows for October. The gold price decline paused at the neckline of the double top we outlined in our September 29 daily article. WTI crude has fallen back below $40 per barrel after a surprise build in US inventories but remains up on the week. 
 

No pre-election stimulus


Trump said he ordered his representatives not to engage again on stimulus until after he wins the election. Stocks had been recovering from a sharp slide in September on the notion that the Democratic House Speaker Nancy Pelosi and Republican Treasury secretary Steve Mnuchin could put differences aside to ink a deal. But that no longer appeared to be the case after leaks of a Monday evening call with party members in which Pelosi described “slow progress” in talks with Mnuchin. 

Trump has pulled the plug on talks to try and take the upper hand in a deal that looked like it wouldn’t happen anyway- and regain some momentum in his re-election campaign – and the election of his Supreme Court nominee. The lack of immediate fiscal and/or monetary stimulus poses a risk to markets. However, the prospect of a bigger deal to be done after the election with Joe Biden as president could put a floor under prices.
 

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