Trump Sent Stocks, Bitcoin & Gold Tumbling Before Backtracking; Fed Chairman Makes a Strong Call for More Fiscal Support
US President Donald Trump sent stocks tumbling on Tuesday after he announced his administration would abandon talks with congressional Democrats over at least $1.6 trillion additional coronavirus relief funds.
“I am rejecting their request, and looking to the future of our Country. I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” said Trump in a tweet late Tuesday.
Nancy Pelosi is asking for $2.4 Trillion Dollars to bailout poorly run, high crime, Democrat States, money that is in no way related to COVID-19. We made a very generous offer of $1.6 Trillion Dollars and, as usual, she is not negotiating in good faith. I am rejecting their…
— Donald J. Trump (@realDonaldTrump) October 6, 2020
All three benchmark indexes took a drop of about 1.8%, with a sell-off in some of the biggest technology companies.
Bitcoin also moved down in tandem, recording nearly 2% losses. Currently, BTC/USD is trading around $10,600, in red, managing $1.27 billion in ‘real’ trading volume.
Gold has been no different; it actually crashed the hardest at 2.5% and today is behaving exactly like BTC.
Bigger Picture: Consolidation
In 2020, bitcoin has strengthened its correlation with the stock market, but on the “super long-term charts,” BTC has always been somewhat related. But it is to be expected to act like a high-risk asset, “especially reacting loosely to the addition or removal of stimulus from central banks,” wrote analyst Mati Greenspan.
Would you look at that. Bitcoin selling off alongside the stock market on that last tweet from @realDonaldTrump.
— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) October 6, 2020
“As we see increased participation from institutional traders, this relationship is becoming ever more apparent,” he said.
However, for stocks or bitcoin, the bigger picture is that markets are still in consolidation, with price ranges narrowing and volatility rising.
So, of course, Trump changed his tune, and hours after his first tweet said Congress should quickly extend $25 billion in new payroll assistance to US passenger airlines that have furloughed thousands of workers.
“Trump backtracking partially, turning market around. Those funds currently sit in the treasury so guessing this very small fiscal stimulus should be easier to pass,” said trader and economist Alex Kruger.
If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now. Are you listening Nancy? @MarkMeadows @senatemajldr @kevinomccarthy @SpeakerPelosi @SenSchumer
— Donald J. Trump (@realDonaldTrump) October 7, 2020
Congress is not expected to return to a session for more than 10 days, which is just two weeks before the US presidential elections. Lawmakers may even make a new attempt to pass a standalone measure for this, which enjoys strong support in both the House and Senate.
Keep that Free Money Coming
Interestingly, amidst this, Federal Reserve Chairman Jerome Powell warned of potentially tragic economic consequences if additional support to households and businesses aren’t provided.
“The expansion is still far from complete,” said Powell during a virtual conference of private-sector economists Tuesday adding, the risks of policy intervention are “still asymmetric.”
If the support is too little, it will lead to a weak recovery that would harm the economy’s productive capacity. At the same time, on the other side, the risks of over-doing are “smaller,” “even if policy actions ultimately prove to be greater than needed,” said Powell.
With many expected to undergo extended periods of unemployment, Powell calls for further support in his strongest remarks to date on the subject.
“The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods,” he added.