The unpredictability of President Trump provided a shock overnight that sent risky assets tumbling as Congress’s hard-fought battle for a fiscal relief deal seemed in jeopardy. Trump is making a push for $2,000 checks, much more than the $600 that has already been agreed upon. The current deal that Congress put together is a band-aid fiscal support solution that keeps unemployment benefits and support for small business lasting till March. Trump wants a substantial coronavirus stimulus package that might make a difference for households. Something needs to get done by December 28th and right now markets are expecting that we could see a last-minute tweak that provides more stimulus for Americans. With less than two weeks to the two Georgia Senate runoff races, Republicans do not want to jeopardize Trump’s support ahead of the elections that will determine who controls the Senate. A bill is still widely expected before December 28th, how we get there it is not clear.
The dollar is broadly declining against its major trading partners after France reopened routes with the UK and on hopes that Brexit negotiators will be successful in delivering a last-minute trade agreement. Europe is battling COVID-19 and can’t afford to have Brexit negotiations go beyond the end of the year.
High-beta currencies are also rallying against the greenback on hopes that the COVID vaccines are expected to work on the new strain of the virus. Thin conditions will likely persist, and the dollar will take its cues from the Republican reaction to President Trump’s demand and if the EU and UK can have a fishing breakthrough.
Crude prices are stabilizing ahead of the EIA crude oil inventory report that is expected to show stockpiles declined by 2.9 million barrels. Yesterday’s API report showed inventories rose by 2.7 million barrels.
Oil has had a rough week as concerns grow that short-term crude demand outlook might be much weaker as the winter wave of the virus intensifies and new strain risks are triggering wider lockdowns.
If US lawmakers are able to quickly resolve President Trump’s last-minute demands over stimulus, crude prices could catch a bid.
Gold prices are little changed awaiting the Republican response to President Trump’s last-minute demand to boost direct payments to Americans. Gold initially sold off after Trump’s move sent shockwaves and sparked fear that Congress might not be able to deliver any stimulus. Wall Street is still expecting a coronavirus relief bill to pass before December 28th.
Gold could have a choppy rest of the year, but if Republicans capitulate and the price tag of stimulus grows, Gold could break above the $1900 level.
Bitcoin is consolidating ahead of the shortened trading week. Broad crypto weakness is emerging early in North America as profit-taking occurs ahead of the Christmas period.
An influx of new investors has provided many reasons to be short-term bullish, the largest cryptocurrency. Money managers who have underperformed are likely going to jump into the cryptoverse and will likely want to show their investors that they are not missing out on the best performing asset of 2020.
Thin conditions will persist till year end and that should easily allow Bitcoin volatility to test the $20,000 or $25,000 levels.
Related: Stocks Drop on Virus Variant