The nonplussed stock market reaction to President Trump's suggestion that COVID-19 will get worse in the US before it gets better fits into the tell-us-something-we-did-not-already-know category.
So far, the EU recovery deal euphoria is holding up, which reinforced the sense again that risk markets continue to be driven by liquidity and light equities positioning, rather than fundamental concerns. Markets have not done that much today, suggesting the traditional Fed blackout period, and the still-palatable level of uncertainly for the rest of the earnings season has started to impact volumes.
While the S&P 500 is prone to profit-taking mode after "no joy" breaking through the critical 3275 level, it is unlikely the e-minis are going to run too far south. For now, bad news seems to remain good news and keeps the taps open from Governments and Central Banks. But we also need to be careful that while the faucets are always open, the flow may now only happen in drips going forward, after the US stimulus bill is put through.
I do not understand why the market is fretting about the US stimulus plan. It has been widely telegraphed there could be a delay, not to mention the slow bipartisan tango that always seems to happen around these events. But at the end of the day, no one, and I mean, no lawmaker, especially in an election year, will want to wear the Scarlett Letter and be accused of being frugal, when people are dying across the US Sunbelt at record levels.
Forex
USD/CNH is heavy with higher equities but trading between 6.9645-6.9750 in an orderly manner. But after mainland regulators adopted one foot on the gas and the other foot on the brake policy to temper the stock market frenzy, so one would expect the anticipated assault on 6.95 to be more of a grind, and where traders will be more inclined to dip their toe, rather than dive in below.
EUR/USD is belatedly reacting positively to EU leaders' fiscal step up the ladder. EUR/USD took a modest dip after the announcement Tuesday, but the deal is a favorable political development and a significant step towards fiscal burden-sharing that justifies further upside in the pair