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Dow Jones U-turns 500pts after Trump cancels stimulus talks

It was very much a day of two halves thanks to a late announcement from - you guessed it - President Donald trump.
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Market Moves
Wall Street rolled over when the US President tweeted that he had called off stimulus talks until after the election. White House representatives, which principally means Treasury Secretary Steve Mnuchin to stop stimulus negotiations until after the election. Markets had already been on shaky ground on reports that House Speaker Nancy Pelosi said in call to Democrats on Monday evening that stimulus talks with Mnuchin were going “very slowly”.


Renewed hopes for another round of stimulus had been behind a sentiment rebound in October following the sell-off in September. With no stimulus coming soon - the chance of another Black Day in October has just nudged up a tad.


US tech stocks were hit with the extra blow of chatter about Democrats calling for the breakup of big tech companies. The House anti-trust committee’s findings on big tech are “a thinly veiled” call to breakup big tech companies - Amazon - Facebook - Alphabet etc according to Republican Congressman Ken buck. Tech stocks had been a go to sector in the market when economic realities looked more severe. Talk of breakup, however unlikely, might limit flows in tech.


European markets traded flat amid a lack of catalysts and only pushed higher in the afternoon thanks to Wall Street opening higher as US President Trump returned to the White House from hospital on Monday. With the US election in focus, European markets are taking their cues from the States. The FTSE100 was the laggard amid the major averages, rising +0.12%, while Italy’s FTSE MIB pushed up by 0.85%.


Logitech shares were among the top fallers after Apple was reported to plan to stop selling third-party devices in its stores in preparation for stocking its new Apple-branded versions.


Trump had returned to the White House, but doctors described him as “not entirely out of the woods yet”. Some COVID patients are known to feel a second and worse bout of sickness into the second week of contracting the disease. Given his age, investors are not taking Trump’s health for granted until he gets the all-clear in two weeks.
The most notable moves on Tuesday were in the bond market. US 10-year Treasury yields reached a 4-month high but little movement in shorter term bonds meant the yield curve - on one measurement - was its steepest since 2016 baring an intraday spike in June.


The moves seemed to largely represent expectations of greater bond issuance - or supply. A widening gap in opinion polls has investors betting on the possibility of a ‘Blue wave’ whereby the Democrats take the presidency and both house of Congress. A CNN poll put Biden ahead by 57% to Trump’s 41%. It might be a bit early to underestimate a Trump bump like that experienced by other world leaders after contracting the virus. UK Prime Minister Boris Johnson and Brazilian President Jair Bolsonaro both saw their opinion ratings rise when they got sick.


The euro had risen early on amid speeches from ECB President Christine Lagarde and Fed Chair Powell. EUR/USD touch a 1.18 handle before rolling over by more than 50pips when sentiment turned risk-off in the afternoon. Lagarde did say that the ECB is prepared to cut interest rates lower than -0.5% but she and Jay Powell have both made it clear that as far as the next big policy moves it - over to you lawmakers with the fiscal support.


Day Ahead
On Wednesday, October 7th the day ahead includes the Vice Presidential debates, the release of FOMC minutes and earnings from UK supermarket Tesco.


Vice Presidential debate. The question of stimulus and Donald Trump contracting COVID-19 could make the event more note-worthy than normal. Read here for our full preview.


FOMC minutes. The minutes are from the meeting when Jerome Powell officially unveiled AIT - average inflation targeting. Any dissent to the decision or clarifications on what it actually means for future rate hikes could move markets.


Tesco earnings. It’s a baptism of fire for new chief exec Dave Murphy who took the job only one week ago. Shares have stumbled since rebounding off March lows amid concerns about rising costs associated with the coronavirus.

 

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