US Markets React: Gold gains, equities and dollar tumble on stimulus jitters

The stimulus election minuet, the most popular dance in Washington, went through another few elaborate rounds on Capitol Hill today with House Speaker Nancy Pelosi's office reporting progress in afternoon talks with Treasury Secretary Steven Mnuchin and tweeting that they “continued to narrow their differences.”

Monday's positive notes came after Ms Pelosi had set a 48-hour deadline for a deal yesterday. According to the the California Democrat's spokesman, Drew Hammill, the speaker and the secretary spoke for almost an hour today and plan to continue tomorrow.

Markets

Gold reached $1918.58 on Monday its highest since last Tuesday and closed at $1904.18 up from the open of $1897.10 The precious metal has seen narrowing ranges since early last week as the legislative back and forth on the stimulus has elicited an ever weaker response from traders. The reaction remains focused on the negative economic impact if a deal fails but hemmed in by resistance at $1930 and $1955 and support at $1880 and $1850.

All three major equity averages fell in Monday trading, with the Dow sliding 410 points, 1.44%, to 28,195.42, the S&P 500 losing 1.63% to 3,426.92 and the Nasdaq Composite 1.65% to 11,478.88. All 11 S&P sectors ended in the negative. This is the fourth loss in five sessions for the Dow and the S&P 500, and the fifth negative in a row for the Nasdaq.

The dollar lost ground against the euro as the united currency closed at 1.1770, it best since October 9, up from its 1.1719 start. The pair remains without trend almost exactly centered in its 11 week range of 1.1700-1.1850.

The USD/JPY retained its slight technical bias lower, gaining the same six points to 105.44, open to close, that it lost on Friday. It is also in the middle of its 104.55-106.60 11 week range.

Among the majors the dollar lost versus the sterling and Swiss franc and gained trifling amounts against the aussie, kiwi and Canadian dollar. The magnitude of the market safety-trade reaction to the stimulus drama is fading as the end approaches.

Stimulus, jobs and Retail Sales

Stimulus negotiations have bedeviled the markets for months ever since the main provisions of the CARES Act, passed in March, expired in July. President Trump continued some of the benefits by executive order but at a lower level than the original.

Job growth has slowed since the summer. Nonfarm Payrolls have slipped from 1.761 million in July to 1.489 million in August and 661,000 in September. American consumers have continued to spend despite 7.9% unemployment and payrolls that are down by almost 11 million from February.

Retail Sales climbed 1.9% in September nearly three times its 0.7% forecast and the Control Group rose 1.4%, far ahead of its 0.2% estimate.

Given the overwhelming media focus on the job losses and the struggles of many service industries to survive it is remarkable that US retail consumption has thrived.

Since the onset of the pandemic and its accompanying lockdowns in March Retail Sales have averaged a 1.01% monthly increase and the Control Group, which enters into the Bureau of Economic Analysis' GDP calculation, has averaged a 1.27% gain across seven months.

Retail Sales

FXStreet

In any expansion these would be very respectable numbers, in the midst of an unresolved pandemic they are remarkable.

Conclusion

Markets will know soon enough if Ms Pelosi's deadline is any more serious than President Trump's withdrawal from talks last week.

What is more determinate is the need for her caucus to return home to campaign. All 435 House seats are up for reelection and while Ms Pelosi probably would prefer that her members return to their districts with claim to a stimulus, most analysts do not think that Democratic control of the House is under threat. 

Equites have a large stake in the outcome, gold and the dollar not so much.