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US congressional leaders are set to approve a second pandemic relief package worth USD900 B. The immediate market reaction to the news was fairly muted given recent progress in talks supported a bounce in risk assets last week. Economists at HSBC remain constructive on US equities as cyclical parts of the market can potentially benefit from these fresh measures. Overall, an overweight position in global equities makes sense.

Key quotes

“This new fiscal package comes at a crucial time, given US economic growth has started to slow more notably as the effect of previous fiscal stimulus efforts wane and a significant resurgence of virus cases has prompted renewed lockdown restrictions in some areas of the US. This is reflected in labour market data with new claims for unemployment assistance increasing in recent weeks. In this context, the package provides an important bridge of support for US households and businesses before the wider rollout of vaccines can help bring the pandemic under control. “

“We remain constructive on US equities. Significant tech and quality exposure remains a positive, while cyclical parts of the market can potentially benefit from these fresh measures – the US economy likely to maintain a relative growth advantage.”

“This package significantly reduces the risk of fiscal policy under-delivery in the near-term”

“We maintain our view that an overweight position in global equities makes sense, although we need to be realistic about what medium-term investment returns can be achieved following this year’s strong performance.”

“We acknowledge that shorter-term downside risks remain, mainly related to the pandemic (e.g. case dynamics, virus mutations and the speed of vaccine rollouts). This may undermine market performance following a recent run of good news.”