Trump refuses to ve-toe the line

Trump threatens veto of stimulus bill

President Trump has been relatively quiet of late by his own lofty standards. But he has thrown markets a curveball this morning by threatening to veto the fiscal stimulus bill that has passed through both houses of Congress. The President has stated that direct payments to families are too low and has suggested to Congress that it tries again. In particular, he appears to be riling against the foreign aid allotments and a number of other pork-barrel giveaways buried in the 5,600-page document. Further complicating the issue is that the USD1.4 trillion government funding bill for 2021 is attached to the legislation. If the President does veto the bill, the government will shut down effectively on the 28th of December.

A two-thirds majority vote in favour of the bill by both the Senate and the House of Representatives can override the Presidential veto, if that is the course of action President Trump chooses. Overriding the veto is a relatively rare event in American politics though, and it threatens to add another layer of ambiguity as traders and investors prepared for the holiday season.

The market reaction in Asia has been surprisingly muted with most of the regions stock markets remaining in the green, even as US index futures sink this morning. Asia’s first reaction appears to be that President Trump is bluffing, or that even if Trump vetoes the fiscal stimulus, Congress will act quickly with the necessary votes. Given that many Congressional representatives have probably already left Washington DC for the holidays, that could be complacent. For now, markets appear to be holding of pressing the sell button until the situation clarifies.

Asia’s calendar is relatively quiet, with just Thailand’s rate decision and Singapore inflation to relieve the monotony. The Bank of Thailand will almost keep rates unchanged at 0.50% but may note its displeasure with the baht’s appreciation. Singapore inflation will remain modestly negative, around 0.20% as consumer demand remains muted, and the rising currency pushes down import prices. That is unlikely to change until the end of Q1 2021.

After disappointing US house price data overnight, the US releases a plethora of important data this evening. Initial Jobless Claims could spike above 900,000 for the week, with Durable Goods expected to retreat to 0.60%. Personal Spending is expected to fall 0.40% for November, slightly better than October. Overall, the picture will be one of Covid-19 impacting domestic demand and jobs, although manufacturing remains robust, much as it has in Europe. The fallout should be modest, but if the President exercises the veto, sentiment on financial markets could turn sharply negative. That is likely to result in falling equities and US dollar strength.

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