2020-10-09 • Updated
“There is no standalone bill without a bigger bill”, - said recently Nancy Pelosi, the US White House Speaker from the Democrats camp. They want a nation-wide all-inclusive big stimulus to fight off the second wave of the COVID-19. Specifically, they want $2.4 Trillion dollars for that. In the meantime, Donald Trump’s Republicans offered a $1.6-trillion stimulus for airlines and small businesses - that was rejected by the Democrats. So he walked away from the negotiations postponing them to November once he – hopefully wins. In any case, the very fact of this discussion means that US authorities are having another stimulus on their agenda. Whether a new stimulus gets approved or not (more probably not, as Donald Trump shut down negotiations on it) – let’s analyze how that affects the world economy and your way to trade it.
Stimulus basically means more money printed and injected into the economy. More money circulating in the economy means higher inflation. At the same time, more money in the economy means financial capabilities and maneuvers for businesses that start expanding as well – that is economic growth. So inflation plus economic growth both boosted by the stimulus is a situation of reflation. As usual, when everything goes well in the case of economic expansion, the market is optimistic, the risk is on, stocks rise, the USD falls. That would be your reflation trading in this scenario.
Hence, with the USD, you would be betting on the bullish direction in EUR/USD. Specifically, you would be looking at 1.19 and 1.20 as potential targets of the reflation trade. Whether it will take place – we are yet to discover.
China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.
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Don’t waste your time – keep track of how NFP affects the US dollar and profit!
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