The Week Ahead: No flies on stocks
Does anyone really know how the week ahead will pan out?Analysts can be made to look rather silly at the best of times and yet the procession of unprecedented events (perhaps not unprecedented then?) means forecasts can literally be turned on their heads, or conclusions of analysis ripped up in the time it takes to send out a tweet.
Predictions of when US fiscal stimulus will arrive seem particularly futile at the moment as the toing and froing in Washington leaves it very hard to evaluate possible progress in the negotiations. The contradictory messages and volatile statements of intent are perhaps best summed up by the very President himself who flip-flopped consistently all last week on his position, as we alluded to last time. The latest claimsfrom the recovering President are that he wants a larger package than either the Democrats or GOP party officials are seeking, having just approved aid to airlines and small businesses, and additional funding to the paycheque protection program.
It seems like time is running out as the Democrats and House Speaker Nancy Pelosi firmly reject any piecemeal fiscal stimulus or standalone bills. Their goals of tax credits, increased funding for jobless benefits or aid to States appear to be far apart from any GOP or White House package. Put it this way – Senate Republicans have only been receptive to a deal below $1 trillion but the Democrats have been jockeying for a $2.2 trillion package.
US stock markets seemingly couldn’t give two dimes to this barrage of confusing headlines with Wall Street notching up its best weekly performance since July. The timing of stimulus is immaterial as investors are convinced something will inevitably happen so adding to the feast already in place of massive government spending allied with all the Fed quantitative easing and zero-interest rate forever policy.
The ECB Minutes released last week were interesting in this regard as their Chief Economist Lane, essentially promised more easing when he said inflation had “likely weakened owing to subdued demand and significant labour market slack”. As new restrictive measures to fight the surge in Covid-19 cases are introduced on the continent, the pace of recovery is being keenly watched. Reopening effects are fading, and all-important German data is already showing stagnation with Chancellor Merkel recently warning that the days and weeks ahead are critical as Germany heads into winter.
EU leaders will get an update on the status of Brexit negotiations at their summit on Thursday. This comes after UK economic output grew slower than expected in August meaning UK GDP remains nearly 10% below its pre-covid-19 February level. As fresh virus measures and lockdowns loom, will the increasingly stalled recovery push PM Johnson into a last-minute U-turn? The self-imposed deadline of October 15 will certainly have to be put back if the litany of do-or-die Brexit deadlines over the past four years is anything to go by, so talks will probably continue to the benefit of sterling. That said, there may yet also be an element of brinkmanship beforehand as each side endeavours to squeeze as many concessions as possible out of the other.