HONG KONG (AFP) – Asian markets drifted yesterday on uncertainty about the chances of a fresh United States (US) stimulus package as talks for a broader agreement appeared to be back on.
The flip comes just days after Donald Trump shut negotiations down and as rising virus infections continue to sap confidence.
Global markets were jolted after the president on Tuesday told his team to stop discussions with Democrats so that lawmakers could concentrate on passing his Supreme Court nomination.
However, he then tweeted that he wanted the two sides to pass legislation giving USD1,200 handouts to struggling Americans and supporting small businesses and airlines, providing a bounce for equities.
House Speaker Nancy Pelosi rejected the call for piecemeal measures and insisted a broad deal was needed, though acknowledged on Thursday that discussions were ongoing with Treasury Secretary Steven Mnuchin.
“We’ve told the White House we’re at the table, we want to continue the conversation,” she said, adding that “we’ve made some progress”.
Meanwhile, on the same day, Trump told Fox Business Network, “Well, I shut down talks two days ago because they weren’t working out. Now they are starting to work out, we’re starting to have some very productive talks.”
Axios reported that the about-turn came after the president became concerned about the negative market reaction to the talks being called off.
“The Democrats appear to have called President Trump’s bluff on his standard negotiating tactic of abruptly ending talks to gain concessions from the other side,” said OANDA’s Jeffrey Halley.
“The House Democrats, while open to some direct bailouts of the airlines, have held their ground and tied more stimulus directly to a larger package, rather than a cherry-picking vote-winning approach favoured by the president.”
But observers said with Democrats and Republicans about USD600 billion apart in the proposals, there was little expectation a deal will be reached before the November 3 polls.
“We are pretty sceptical that you’ll see anything before the election,” Libby Cantrill, at Pacific Investment Management, told Bloomberg TV. “We probably won’t see any additional support for the economy until January 2021 maybe at the earliest.”
Wall Street provided another positive lead but Asian markets struggled to maintain any momentum.
Tokyo, Hong Kong, Singapore, Manila, Jakarta and Bangkok were slightly lower, while Sydney was barely moved. Wellington and Mumbai were slightly higher.
Shanghai jumped more than one percent, though, as traders in mainland China returned from their Golden Week holiday.
London, Paris and Frankfurt all rose at the open.
Still, investors are growing increasingly confident that Joe Biden will win the White House, with polls giving him big enough leads in battleground states that could prevent Trump from challenging the result – a situation that would fan uncertainty.
And with Democrats possibly winning both houses of Congress, bets are being put on a much bigger stimulus than the one being discussed presently.
“Investors are revelling on the blue wave rally bus where the first order of the day… will be to open up the stimulus taps, and stocks are rallying in kind,” said Axi’s Stephen Innes, referring to the Democratic party’s colours.
National Australia Bank’s Rodrigo Catril added that the growing probability of a Biden win is settling markets, who “don’t like uncertainty”.
“It seems investors are embracing the prospect of a huge Biden fiscal spending plan with concerns over higher taxes and regulation likely to be a 2021 story,” he said.
While US stimulus and the election are major drivers of markets, a surge in new virus infections in Europe is causing much angst, with several countries re-imposing fresh containment measures and considering localised lockdowns.