Mini fiscal stimulus provided a relief while US-China tensions at risk of rising

US stocks staged a U-turn after Tuesday’s carnage, as President Trump commented that he was opened to negotiate a 'mini' fiscal stimulus package, with limited programmes to help the airline industry and small businesses as well as a US$1,200 personal cheques payments to Americans. He threw the broader based second US$2.2 trillion fiscal stimulus package approved by the Democrat-controlled House on the back burner.

In addition, House Speaker Nancy Pelosi signalled an openness to the airline-relief bill but declined to support the US$1,200 personal cheques stimulus programme, citing that was insufficient to address economic challenges posed by the coronavirus. Nevertheless, financial markets took these latest developments as a sign of optimism that sent the S&P 500 and Nasdaq 100 to a rally of +1.7% and +1.9% respectively. Market leaders were value oriented stocks where the S&P Materials and Industrials rose by +2.6% and + 2.2% with Consumer Discretionary that added +2.5%.  

Despite the robust gains seen in the US stock market, gold futures (COMEX) do not see a similar parallel optimism where it rose by just +0.5% at the close of the US session and traded below the 1900 psychological level.

The US Dollar Index recorded a modest loss of -0.3% by the end of yesterday’s US session

UK/EU and US/China relationships strained

Brexit continues to be in a limbo as negotiations between UK and EU are at risk of breaking down. British PM Boris Johnson has kept to his stance that the outline of a deal needs to be clear by 15 October and that if not, UK will be “happy” to exit EU without a deal. The GBP/USD has continued to trade sideways so far below a key short-term resistance level at 1.3035.

Meanwhile, the flames of the US-China Tech War seem to be blazing again as the US White House administration is exploring restrictions on China’ digital payment platforms that cover Alibaba’s Ant Group and Tencent Holdings over national security concerns. But the bigger picture is to contain China’s dominance in global digital payments and curb the globalisation of the Yuan that may post a threat to the US led SWIFT payments system.

Also, such a move by the White House increases the risk of infuriating China and may cause a disruption of Alibaba’s ANT initial public offering that is expected to come at the end of October with an expected US$35 billion price tag, a potential world’s largest IPO. Share prices of Alibaba and Tencent over at the Hong Kong Stock Exchange have traded down by -0.4% at this time of the writing.