Stock Market Dips Ahead of Election and Failed Coronavirus Stimulus Bill

s&p 500 chart 10-27

US Dollar prices are climbing up, despite the disappointment of investors with the situation with the financial stimulus package for the economy and the increase in the number of COVID-19 cases. Contrary to market expectations, a compromise on measures to support the US economy was not found last week, although the parties actively announced progress in the negotiations. Congressional Democratic leader Nancy Pelosi did not rule out agreeing on the package this week and said she hoped to receive a response from the White House on the remaining controversial issues on Monday.

Key Market Points –

  • Treasuries rally on risk aversion, front end lags ahead of record supply
  • Stocks drop sharply: virus woes, earnings disappointments, lack of stimulus
  • New home sales fell 3.5% to 959k in Sep from 994k in Aug, prices rise
  • Dallas Fed index climbed better than expected 6.2 points to 19.8 in Oct
  • Chicago Fed national activity index fell to 0.27, but positive for 5 months

Nevertheless, many observers note that even if a compromise is found, the implementation of measures to support the economy will not have time to begin before the presidential elections. Meanwhile, the US coronavirus pandemic continues to grow. On Friday, a daily record for the number of infected in 83K people was set. In the past week, a sharp increase in the incidence (by 5 percent or more) was recorded in 37 states. The deterioration of the situation may force the authorities to take new restrictive measures. Lastly, USD is strengthening against its main competitors – JPY, EUR, and GBP.

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However, oil prices are declining again. Oil quotes are under pressure from several negative factors. First of all, investors are alarmed by the continued spread of the coronavirus pandemic in the United States and European countries, which could exert serious pressure on the demand for commodity assets. At the same time, the preconditions for the deterioration of the situation remain. The financial aid package for the US economy remains uncoordinated, which also makes the outlook for growth in energy demand negative.

Against this background, the volume of oil supply on the market continues to grow excessively, primarily due to the fact that the Libyan National Oil Corp. has allowed exports from the ports of Es-Sider and Ras Lanuf. Thanks to this, the volume of oil production within two weeks can increase to 800K barrels per day, and within four weeks – up to 1 million barrels. Investors’ main hopes for maintaining oil prices are associated with the decisions of the OPEC+ members. If from January 2021 production restrictions are reduced to 5.8 million barrels per day, the quotes will be dealt another serious blow. Otherwise, the market may stabilize.

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