After investors listened to Fed Chair Powell urge Congress to do their part in supporting the economic recovery, President Trump decided to end stimulus talks with Democrats. Trump’s action cements his agenda until the election. He will push to get his Supreme Court pick through and commit to a strategy of blaming democrats for asking too much and being the reason why the economy is in danger. The market reaction was strongly negative for risky assets, stocks fell to session lows, while commodities declined. Hopes for a stimulus deal before the election were limited, but a thin trading session allowed for risk aversion to be amplified.
Crude prices gave up half of their gains after President Trump called off stimulus talks with the Democrats. Oil was looking pretty bullish earlier in the session on coronavirus treatment optimism, escalating strikes in Norway, and possible disruptions of oil production in the Gulf of Mexico. The economy needs stimulus, it just won’t get until after the election. The outlook for oil prices should improve as the economy works it way to pre-pandemic behavior. Oil’s downward pressure will only last as long as this rebound in the dollar.
Gold prices went into freefall after President Trump decided to end fiscal stimulus negotiations. Trump is doubling down on his strategy to blame the Democrats for the economy. Trump is down severely in both national and battleground state polls and this halt in stimulus negotiations will likely be only short-term negative for gold. Trump’s decision only delays fiscal stimulus and will likely be met with some further accommodation by the Fed.
Fiscal stimulus will happen, and Wall Street is still counting on a blue wave that will deliver huge spending plan that will keep the risky assets supported all of next year. Gold will have to dust itself off, but the bullish outlook remains intact.
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