October 7, 2020

Stock Futures Confused, VP Debate Ahead

Stock Futures Confused, VP Debate Ahead

European futures are trading lower as the German industrial production number has failed to impress the markets. The number came in at -0.2% against the forecast of 1.5%, while the previous reading was 1.4%. European traders are also going to be focused on Christine Lagarde’s speech. The president of the European Central Bank will provide more information about the bank’s monetary policy, and it is likely to bring higher volatility for the Euro. Since her last speech, the Euro has been under pressure; the ECB has been giving conflicting messages with respect to the currency. 

No Stimulus Until After Election

The U.S. futures are fluctuating between gains and losses as investors continue to digest the new decision by President Trump on the stimulus package. Trump asked his team to stop the negotiations with Democrats lawmakers on the stimulus package. Trump wants to bring a big stimulus package, but only after he wins the U.S. election.

Airlines In Trouble

U.S. airline stocks fell hard on the back of Trump’s new move. Nancy Pelosi, House Speaker, did assure the U.S. airlines not to let go of their furloughed employees as help is on the way. However, the fact that Trump isn’t going to do anything about this means that airlines will have no other way but to let people go. This means much higher unemployment and much deeper coronavirus scars for the U.S. economy. However, the U.S. airlines got off their session low as Trump assured further stimulus help for airlines and more protection stimulus checks after the U.S. elections.

The Questions

When we look at the global markets, we are not seeing much panic. This raises the question of why investors are not punishing the markets when they know that the U.S. economy isn’t going to see another stimulus package for another one month or so. This market is addicted to fiscal and monetary help. We should have seen a much deeper sell-off for the global markets, and the U.S. futures should have tanked. However, this isn’t the case, as the U.S. stock futures are actually trading in positive territory. The reason for U.S. stock futures trading higher is because investors know that whoever will win the U.S. presidential election, another stimulus package is more than likely to happen.  

Volatility

Investors should expect higher volatility this month. The VIX index recovered some of its losses last week, and it is likely to remain the instrument of choice among investors and traders as the U.S. presidential uncertainty continues. Once again, today, the focus is going to remain on the U.S. election. The VP debate will take place between Kamala Harris and Mike Pence. Kamala Harris is expected to dominate the debate.

President Trump has also said that he is ready for the second presidential debate with Joe Biden. After coming out of the hospital, his message has been even firmer for Americans: he is the right choice for Americans as the next president of the U.S. 

FOMC

Later today, we will have the FOMC minutes. The Fed Chairman, Jerome Powell made it clear yesterday that the U.S. economy needs more stimulus. In addition to this, he has also said that the U.S. economy needs substantial stimulus because a small package is likely to do more damage, and it is better to have no stimulus at all, rather than having a small stimulus package. It seems that the Chairman is more on board with the Democrats stimulus package. 

However, in the upcoming minutes, traders would like to know what the Chairman’s plans are, especially if there is no further stimulus.