Week in a Glance: Trump and stimulus, Brexit and oil growth

12 Eki 2020

The main events of the past week took place in the US and centered around the fate of the stimulus package for the US economy, as well as the presidential race. And if everything is more or less clear with the second, Biden's gap from Trump is too big to disappear in the remaining 3 weeks before the elections. As for stimulus, situation is unpredictable. We don't need to name whom to thank for this.

Right after Trump was discharged from the hospital, he announced that he is withdrawing the Republicans from the negotiation process with the Democrats. He is going to return to the issue of stimulus after he would win the election. But the very next day, his position changed: there will be no stimulus package, but single measures (for example, $ 1200 stimulus checks) are quite appropriate. The Democrats quickly replied “no” to this.

After that, Trump once again radically changed his position and now the stimulus package is back in the game. According to the latest information, the Republicans are ready to offer $1.8 trillion. This is still less than the Democrats want ($2.2 trillion), but almost 2 times more than the starting position of the Republicans ($1 trillion). Considering that the situation is radically changing literally every day, it is impossible to say with certainty how it will end. Although we believe that, before the election results are announced, the adoption of the stimulus package may give an advantage to one of the parties, which means that it is politically disadvantageous in general.

The week of negotiations between the EU and the UK began with Johnson's ultimatum that if there will be no deal in the next two weeks, Britain will leave the negotiation process. The EU responded with its ultimatum - they are ready to be at the negotiating table until the end of October or even the beginning of November. Well, the stakes have been raised to the maximum, which means the end is very close. The past week has left a sense of some progress, but no breakthrough. This means that the risks of no-deal scenario are still relevant.

Last week was extremely successful for the oil market. The main reason for the growth were expectations of Hurricane Delta and potential damage to the US oil industry, 17% of which is located in the Gulf of Mexico, as well as an oil strike in Norway. We have mentioned that both factors as short-term force majeure, their duration is very limited, as well as their positive impact on oil prices. So, this week we expect a significant drop in oil prices, when it becomes clear that once again the hurricane spared oil capacity in the United States, and in Norway, production will return to normal after the government and the remaining striking union agree.

What to expect from the coming week? First and foremost, the sequel to the stimulus epic in the US: too much is at stake. This means financial markets will continue to be driven by hopes and expectations. The Brexit story will continue. Even though it comes to its logical conclusion. An EU summit will take place this week, at which, in theory, a ready-made trade agreement between the EU and the UK should be discussed, but it still does not exist.

Earnings season for the third quarter starts in the USA. It is expected to be less disastrous than in the second quarter, but the numbers still promise to be rather weak. Perhaps this will remind buyers in the US stock market how far the current prices are out of touch with reality.