Trump Adds Stimulus Confusion to Year-End Investor Calculus

(Bloomberg) — President Donald Trump’s surprise request for changes to the $900 billion stimulus bill passed by Congress adds to a growing list of uncertainties for investors and may spur some to cash out, strategists said.

Markets reacted cautiously after Trump signaled he may not sign the aid package, demanding larger payouts and the removal of some elements of the bill. U.S. and European equity futures initially slid on the development but later recouped losses, while Asian stocks edged higher. S&P 500 contracts climbed 0.2% as of 8:55 a.m. in London.

© Bloomberg Stock futures steadied after sliding on Trump intervention

The threat of a stimulus delay brings another risk for markets after global equities reached a record last week. Investors were already grappling with the implications of a new virus strain that appears to be more contagious, as well as the delicately poised Brexit trade talks.

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Trump demanded that lawmakers increase the stimulus checks due to go out to most Americans to $2,000 from $600. In addition to $900 billion in pandemic-related measures, the U.S. spending package includes $1.4 trillion to fund government operations through next September. If the president doesn’t sign the legislation by Dec. 28, government funding would lapse after midnight that day, triggering a partial shutdown.

Here’s what strategists are saying about the latest developments:

Negative Constellation

“Any delay at this point is likely to have risk-off implications,” said Ilya Spivak, head Asia Pacific strategist at DailyFX. “A negative constellation of narratives is starting to overlap.”

“Growth is sagging so the market was already primed for an anti-risk correction. The illiquidity makes it worse. Makes prices jump further because there is less liquidity at every price level, so when someone tries to liquidate it moves markets more, and price action is more choppy. This is yet another catalyst to inspire people to cash out.”

Sentiment Roadblock

“With the market having priced in the expectation for the present coronavirus relief package, a roadblock here would hit sentiment particularly given the short-term growth implications,” said Jingyi Pan, market strategist at IG Asia Pte. “At this point, it is hard to tell if a delay will come by and how long it may last, but no doubt the dent will be congruent to the extent of the delay past the year-end when more of the current support drops off.”

Wait and See

“We don’t yet know if this will lead to an actual delay in the relief package, so our basic stance would be to wait and see,” said Shogo Maekawa, a market strategist at JPMorgan Asset Management in Tokyo. A delay would require a reevaluation of the market’s current stance of looking past negative data to anticipated economic stimulus, given worse-than-expected consumer sentiment, he said.

Ugly End

“It’s an ugly end to the year for U.S. politics. Let’s hope the markets can hold their nerve and see through it,” said Gary Dugan, chief executive officer at the Global CIO Office, an asset manager in Singapore. “It leaves the market vulnerable into the close of the year. President Trump has nothing to lose by being belligerent and holding things up. If checks are delayed by some weeks the markets will fear a marked loss of momentum in the U.S. economy.”

Larger Bill

“Ultimately, a larger bill is good for the economy,” Thomas J. Lee, a strategist at New York-based Fundstrat Global Advisors, said in a note to clients. “But naturally, the timing is awful and at a critical period for markets, looking at year-end.”

Trump Bluff

“The market reaction in Asia has been surprisingly muted,” said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda. “Asia’s first reaction appears to be that President Trump is bluffing, or that even if Trump vetoes the fiscal stimulus, Congress will act quickly with the necessary votes. Overriding the veto is a relatively rare event in American politics though, and it threatens to add another layer of ambiguity as traders and investors prepared for the holiday season.”

(Updates markets in the second paragraph.)

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