Europe To Open Higher As BoE To Pump In £150 Billion & Biden Edges Ahead

Fiona Cincotta November 5, 2020 6:35 PM

BoE injects £150 billion & markets applaud election outcome (so far)

Charts (1)

European stocks are looking to open broadly higher on Thursday after Wall surged overnight, even though the winner of the US Presidential election has yet to be declared and it could still be days until the winner is announced. Joe Biden has 264 electoral college votes versus Trump’s 214. However, Trump has requested recounts in several states and threatens legal action yet the US stock market surged.

On paper this was the worst-case scenario, an undecided, contested Presidential election. The reality is that the market couldn’t seem happier with the most likely outcome of a Democrat President, and Republican Senate. This is because Je Biden’s tax cuts are unlikely to be passed by a Republican Senate. Gridlock in Capitol Hill on this occasion could be good news for stocks.

Bank of England supports economy
Stocks on the FTSE are being supported after the Bank of England announced that it will pump an additional £150 billion into the economy as the UK goes into lockdown. 
The central bank voted unanimously to keep rates on hold at 0.1%. The central bank also increased its QE programme by £150bln, more than the £100 billion expected. The pound breathed a sigh of relief; early morning rumours had suggested that the BoE was going to cut rates which had sent the Pound sharply lower. 

The injection of cash into the economy by the BoE comes as the UK enters its second lockdown and amid a weakening in the broader economy. PMI data yesterday for the service sector indicated that growth in the dominant sector is already showing signs of stalling even before lockdown begins. The BoE also slashed its growth projections with a contraction now expected in the fourth quarter. Risks to the recovery are skewed to the downside – not that surprising when you consider that a no trade deal Brexit could be happening in lockdown. How long it would take the British economy to recover from a mess like that remains to be seen.

GBP/USD has fully recovered from its early morning sell off and is now trading in the black +0.1% comfortable in the knowledge that the BoE has the economy’s back. 

FOMC no change expected
Looking Ahead the Federal Reserve interest rate announcement is due later today. This is unlikely to have much impact on the market, which remains heavily focused on the race to the White House. The data from the US over the past month has been resilient despite record numbers of new covid infections. The markets have been broadly steady and there is little reason for the Fed to make a move this month. US interest rates are expected to remain at these levels for the next few years and the Fed could well reiterate that message.

FTSE Chart

The FTSE is trading +0.5% and has pushed over its 200 sma on the 4 hour chart. It is targeting its descending trendline resistance at 5940, a move above here could negate the current bearish trend bringing 6000 round number into focus.

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