From ZeroHedge:
US equity futures and global shares slumped on Friday after Joe Biden unveiled his massive - and perhaps untenable - stimulus plan as concerns grew that the president-elect will struggle to gain support for his $1.9 trillion pandemic relief plan. Stocks dropped while bonds were mixed.
In prime-time remarks, Biden outlined a proposal that includes $415 billion aimed at the COVID-19 response, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities hard hit by the pandemic.
But that initial boost later faded as risk appetite waned, lifting bond prices and the dollar, and hitting equities as attention turned to how much of the package will ultimately get passed by Congress, with the go-big price tag and the inclusion of proposals set to be opposed by many Republicans. As lawmakers wrangle over details, U.S. jobless claims published Thursday painted a dismal picture and the U.S. is leading all countries in virus deaths with New York state reporting more than 200 daily fatalities for the first time since May.
“People are saying it’s a big number but markets are almost acting like its a disappointment,” said James Athey, investment director at Aberdeen Standard Investments. “I think maybe the market was pricing an additional $2,000 cheque going to the U.S. population, but what’s being proposed is a top-up of $1,400 to take the total to $2,000 because $600 has already been agreed.”
That... plus markets are realizing that the plan is unlikely to pass in its format, because if even one centrist Democrats objects the entire plan may fall apart. Investors also digested the prospect of rising taxes to pay for the plan.
“The concern is what it’s going to mean from a tax stand point,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “Spending is easy to do but the question is how are you going to pay for it? Markets often ignore politics but they don’t often ignore taxes."
“Biden’s big fiscal plans are out of the bag, and now the current dire situation is countering U.S. reflation hopes,” Antoine Bouvet, a senior rates strategist at ING Groep NV, wrote in a note. “It is unlikely going to get any better soon, given the currently slow rate of vaccine rollouts.”
Biden’s comments came after Federal Reserve Chair Jerome Powell struck a dovish tone in comments at a virtual symposium with Princeton University. Powell said the U.S. central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term.
Investor concerns over the prospects for a global economic recovery were also raised after France strengthened its border controls and brought forward its night curfew by two hours to 6 p.m. for at least two weeks to try to slow the spread of coronavirus infections, while Germany Chancellor Angela Merkel called for “very fast action” to counter the spread of variants of the coronavirus.
As a result, the MSCI world equity index was 0.2% lower. S&P 500 e-mini futures shed 0.3% to 3,779. Chinese smartphone manufacturer Xiaomi tumbled 10% after the Trump administration unexpectedly blacklisted the company for alleged military links along with the country’s third-biggest oil company over its drilling in the South China Sea.
European stocks followed Asian markets lower, with the pan-European STOXX 600 down 0.4% as energy firms and miners led declines in the Stoxx 600 Index, with the gauge on course for its first weekly loss since since mid-December. Optimism about the U.S. aid package had helped spur the reflation trade, but the plan is far from a done deal. Biden’s proposal could be watered down under Congressional opposition, and there’s the possibility that some taxes could rise. London’s FTSE 100 0.6% weaker, with the latter clobbered by data showing Britain’s economy shrank in November for the first time since the initial COVID-19 lockdown last spring as social-distancing rules tightened....
....MUCH MORE
S&P and DJIA futures down .45% and .55% respectively.
Gold is trading heavy, down $11.10.
