Trump Stimulus Flip Bolsters US Stocks

US stocks rebounded Wednesday after President Donald Trump appeared to reverse his decision to hold off on any new stimulus until after the November 3 election.

Wall Street's main indices had fallen sharply on Tuesday after Trump abruptly halted talks with Democrats on another stimulus package as the US economic recovery loses steam.

The move came only hours after Federal Reserve Chair Jay Powell urged lawmakers to pass measures to boost the economy after it was hit hard by coronavirus shutdowns.

But late Tuesday, Trump called for Congress to "immediately" pass stand-alone legislation to extend aid for airline workers and small businesses. Trump also said he would back another round of $1,200 stimulus payments for workers.

Wall Street stocks rose Wednesday as investors saw better chances for some kind of relief following Trump's latest comments.

The Dow closed with a 1.9 percent gain.

Peter Hanks, a strategist at DailyFX, expressed skepticism that the good feeling would continue, and saying he needed "clarity" on the stimulus prospects.

"I'm a little concerned for the rest of the week and maybe heading into next week," Hanks said.

White House officials acknowledged Wednesday that chances for passing a broad-based stimulus before the election are slim.

"At the moment it's a lot of hot air, and may be setting up the markets for disappointment down the line," said Connor Campbell at Spreadex.

"Nevertheless, US investors seem to be buying Trump's pronouncements."

European indices were harder to convince however.

Frankfurt eked out a gain, but both London and Paris dipped.

The dollar was mixed against other major currencies, and oil prices dropped once again.

Analysts said the US market had become more optimistic about the presidential election given Democratic nominee Joe Biden's lead in the polls, which suggests that a drawn-out and contested outcome may be averted.

Financial markets also focused on the pound as negotiations between the EU and Britain on their post-Brexit relationship resumed.

Chris Beauchamp, chief market analyst at IG, said the hard line Britain was taking in the talks with warnings it could walk away from the negotiations was unsettling the pound.

British negotiators might believe they have finally gained "a psychological ascendancy over the EU side, but it is a dangerous game to play, with markets likely to take a disorderly exit in a very unpleasant frame of mind," he said.