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Sep 24, 2020

U.S. stocks whipsaw as traders weigh odds of stimulus

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Stocks whipsawed as investors weighed the chances of a compromise on a new stimulus package amid concern over an uptick in global coronavirus cases.

The S&P 500 pared most of its earlier rally after optimism faded that Congress would reach a spending deal with the White House. Stocks surged midday on news that Treasury Secretary Steven Mnuchin and the Democratic House leader were open to fresh talks. But a report that Speaker Nancy Pelosi’s fresh overture deviated only slightly from previous offers sparked concern that the two sides would remain far apart.

House Democrats have started drafting a stimulus proposal of roughly US$2.4 trillion, according to multiple House Democratic officials. While smaller than the US$3.4 trillion package the House passed in May, the new proposal remains much larger than what Senate Republicans have said they could accept. President Donald Trump has indicated he’d be willing to go as high as US$1.5 trillion.

“The odds of Phase 4 stimulus are a close call,” wrote Aneta Markowska, chief economist at Jefferies LLC in New York. “While still possible, there is a high risk that it does not happen this year. Without it, we would expect the economy to hit a major speed bump in Q4.”

The risk of a slowdown in the economic recovery has risen with the lack of movement on another stimulus package. Goldman Sachs Group Inc. economists cut their forecast for U.S. growth in the fourth quarter amid lack of extra aid. Federal Reserve Chairman Jerome Powell reiterated that “it’s likely that additional fiscal support will be needed,” while Fed Bank of St. Louis President James Bullard said the economy may be close to a “full recovery” by year-end.

High-frequency data that tracks economic activity show a slowdown in the recovery from the height of the lockdowns, with Americans again cutting back on flights and going out to eat less often. As Europe reemerged as a hot spot for Covid-19, the U.K. reported the highest number of new cases in a single day since the start of the pandemic, while France’s new infections jumped to a record.

Meanwhile, Republican lawmakers vowed that the presidential transition after November’s election will occur without disruption, in a rebuke to President Donald Trump’s refusal to commit to a peaceful transfer of power.

These are some of the main moves in markets:

Stocks

  • The S&P 500 advanced 0.3 per cent at 4 p.m. New York time.
  • The Stoxx Europe 600 Index decreased 1 per cent.
  • The MSCI Asia Pacific Index sank 1.8 per cent.

Currencies

  • The Bloomberg Dollar Spot Index declined 0.2 per cent.
  • The euro climbed 0.1 per cent to US$1.167.
  • The Japanese yen was little changed at 105.41 per dollar.

Bonds

  • The yield on 10-year Treasuries dipped one basis point to 0.66 per cent.
  • Germany’s 10-year yield climbed less than one basis point to -0.50 per cent.
  • Britain’s 10-year yield advanced less than one basis point to 0.219 per cent.

Commodities

  • West Texas Intermediate crude advanced 0.8 per cent to US$40.23 a barrel.
  • Gold strengthened 0.3 per cent to US$1,868.22 an ounce.
  • Silver strengthened 1.5 per cent to US$23.13 per ounce.

--With assistance from Joanna Ossinger, Adam Haigh, Constantine Courcoulas, Cecile Gutscher, Lynn Thomasson, Casey Wagner, Vildana Hajric and Claire Ballentine.

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