US equities scratched out another gain on Thursday, the S&P closing 0.5% after recovering from intraday losses as the stalemate persists on fiscal stimulus negotiations.
House Democrat Leader Pelosi indicated a House vote would proceed despite being "still far apart" from Republicans. That House vote symbolizes the stalemate: without Republican agreement, it has no chance of passing the Senate, but gives Democrats a platform for the Presidential election. US10Y yields fell 1bp to 0.68%
Things remain fluid; we all know what’s at stake if this deal doesn’t go through before market’s sundown, and it’s unlikely to be pretty. But we’ll have more to say later, possibly on Asia Macro or hopefully by Asia close as, fingers crossed, we finish the week on a positive note as the US stimulus deal gets sent to Senate for a rubber stamp.
‘Even with the shift down in risk appetite since negative headlines earlier from Politico on US stimulus and although markets have responded, it is somewhat lackluster, suggesting investors are growing a little tired of this headline back and forth. Though off the lows, treasuries are still in negative territory for the day, while equities are the mirror image, off the highs but they even managed to paint the ticker tape green.
I uniformly believe investors are very reluctant to give up their overall bullish bias, even when positive drivers such as the ultra-dovish Fed and the prospect for vaccines and new fiscal stimulus get questioned.
This makes a lot of sense to me as all three of them will likely remain critical supportive factors in the medium term, even if they temporarily disappoint in the short term. Sill, the investor mindset should remain one of looking for buying opportunities for riskier assets while adding more stocks.
I’m not a political scientist, instead merely looking at the number that could be stacked against the deal anytime soon. Just one-third of the Senate is up for re-election in November, of which 23 seats are Republican. At this point, only four of those seats are genuinely at risk of falling into Democratic hands. That means most Republican senators have no trouble standing pat.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies