Risk Aversion Sends Stocks Lower, Sunak's Winter Economic Plan in Focus

Slowing economic recover & rising covid cases drag on sentiment. Can Rishi Sunak's Winter economic plan boost sentiment?

Downtrend 1

The deep sell off on Wall Street is spreading over into Europe, wiping out gains from the previous session. European bourses are a sea of red as risk off dominates amid rising concerns over resurging coronavirus infections and its potential to derail the fragile economic recovery.

Wall Street experienced a sharp decline after a series of warnings from the US Federal Reserve. Federal Chair Jerome Powell reiterated that the US economy still had a long way to go before recovery weighed on sentiment. His comments were supported by Fed Vice Chair Richard Clarida who considers the US economy to be in a “deep hole”. 

The Fed sees a strong case for additional fiscal support. However, another rescue package before the November elections is starting to look very unlikely.

Evidence of the slowing economic recovery was evident in yesterday’s PMIs, particularly in Europe where the srtvice sector unexpectedly contracted. With covid cases rising and restrictions tightening the situation is only going to deteriorate over the coming months.

Rishi Sunak to the rescue?
UK Chancellor Rishi Sunak won’t be making a budget this year, instead, he will roll out a winter economic plan to see the UK through the coming month, which are set to be extremely challenging. With the furlough scheme set to end of 31st October, the markets have been concerned with what’s next? The centre piece to Rishi Sunak’s plan, to be announced today, is expected to be a wage  support scheme similar to that in Germany. A scheme to subsidise wages of people in part time work, replacing the more expensive £39 billion furlough scheme. This should mean that the 4 million or so people that are neither in employment or out of employment on furlough, won’t necessarily face a cliff edge. This should at least soften the blow to the economy.

Whilst the announcement late yesterday helped lift the Pound versus the Euro, sterling has failed to gain ground versus the mighty US Dollar all week, owing to increased safe haven flows into the greenback.

Looking ahead German IFO business sentiment data and US initial jobless claims will be in focus for further clues over the health of these economies 

Oil extend losses  
Oil process declined on Thursday and are extending losses weighed down today, despite inventories falling by 1.6 million. Concerns that the economic recovery in the US is stalling and concerns that Europe will soon be under tighter lockdown restrictions is dragging on the demand outlook.

FTSE Chart

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.