Europe Starts Firmer Ahead of Potentially Volatile Week

European bourses are seeing an upbeat start to the week, boosted by a strong close on Wall Street on Friday, on hopes of further stimulus and encouraging data from China.

Charts (6)

European bourses are seeing an upbeat start to the week, boosted by a strong close on Wall Street on Friday, on hopes of further stimulus and encouraging data from China. Risk on trading is boosting demand for equities, whilst the safe haven US Dollar slips away from its 2 month high.

Chinese factory profits continue to see steady growth, rising for the 4th consecutive month in August, buoyed by a partial rebound in commodity process and equipment manufacturing. Industrial firms’ profits grew 19.1% YoY in August. The data shows that whilst concerns are growing over a slowing economic recovery in Europe and the US, the economic recovery in China, the world’s second largest economy has been gathering momentum. Miners are trading higher on the back of the upbeat data in addition to the weaker US Dollar lifting commodity prices.

US stimulus coming?
Late on Friday the US Treasury Secretary Steve Mnuchin and House Speaker Nancy Pelosi agreed to start formal talks on a new coronavirus rescue package. There had been growing fears that with the US elections under 2 months away the two sides would struggle to reach a fiscal stimulus agreement; stimulus which is badly needed a the US economic recovery shows signs of stalling and the recovery in the labour market could even be reversing.
This week is set to be a BIG week for event risk with Brexit talks, the first Biden – Trump live debate for the Presidential elections along with a slew of data culminating in US non-farm payrolls. Volatility could be back with a bang this week.

Brexit in focus
The Pound is starting the week on the front foot amid mildly improving Brexit sentiment. The mood music surrounding trade talks has improved, which is offering its support to the Pound. In the absence of any high impacting UK data today, all eyes will be on Brexit headlines as Michael Gove meets with European Commission Vice President Maros Sefcovic. The Internal Markets Bill still casts a shadow over talks. However, the fact that the EU hasn’t broken away from negotiations yet is encouraging. Frost’s negotiating team also reportedly say that a deal will be agreed. The clock is ticking towards the British government’s self-imposed deadline of 15th October so Brexit headlines will take on even more importance than before. 

Rising Covid
Rising covid cases in Europe and the UK and the threat of tighter restrictions could keep any gains in Europe in check. With covid cases in the UK up 46% in a week and London on the brink of another lockdown, the next 6 months look set to be challenging for business across the board.

More from FTSE 100

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.