US GOVTS-Chance of stimulus bill now near zero with DC drama over SCOTUS seat, double-dip

IFR Immediate Alert Global Squawk Box
US GOVTS-Chance of stimulus bill now near zero with DC drama over SCOTUS seat, double-dip Sep 21 2020 07:52 by Duncan Balsbaugh Back in August we warned of the potential for an “awful autumn”. It will get worse. How much, who knows. Of course, the news over the weekend added to angst, from several sources. Increasing Covid cases across the Atlantic threatens another lockdown in the UK. Europe’s big banks are getting gutted again (Deutsche Bank dumped near 8%). However, we see the main antagonist again as dysfunctional DC. The money-line, or main theme developing over the weekend, the chance of a stimulus bill are now near zero. The passing of Supreme Court justice Ruth Bader Ginsburg, and the GOP rush to fill the seat perhaps before the election, potentially kills any chance of a stimulus bill. That’s a big deal in our estimation. Equities are still priced for approximately $2+ trillion in stimulus. Now looking like a pipe dream. And the Powell Fed is now sidelined.

Likely until December, given that official election results may not be in by the November meeting. The stage is set for a double dip in the US economy. Don’t get caught up in the optimists’ focus on global trade improvements. That boomerang rebound in global trade, will benefit manufacturing economies by far, over service economies like the US. Manufacturing mainly in China, Asia, and Germany, saw durable goods demand postponed, now renewed. The opposite of the US service economy, representing likely 75% or more by now, where said services were canceled. Not to be replaced. And still near zero demand for so many services, now that the flu season joins the Covid’s second wave.

The timing could not be worse, as the nasty uncertainties playing out, intersect with the most overvalued equities market in history. Year to date, roughly 60% of the stocks in the S&P sport negative returns. Only about 25% of the stocks have beat the S&Ps return. And just five stocks are responsible for the S&Ps super-steroids performance. Of course that analysis is even worse within the Nasdaq100. However, S&P e-minis look to be near some support. 3218 is the 10% off the highs level. Which should cap gains on USTs, with 30-year yield support/price resistance near the 100 day moving average at 1.389% (low 1.395%). For selling to return, Spoos must recapture the 50 day mover at 3329.

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