Stocks Slip On Second Wave Fears and Ahead of Fed

European bourses are pointing to a softer start on the open as fears of a second wave of coronavirus take hold and as investors look ahead to the FOMC.

Charts (6)

European bourses are pointing to a softer start on the open as fears of a second wave of coronavirus take hold and as investors look ahead to the FOMC.

Wall Street finished in the red and the US Dollar continues to languish at 2-year lows amid fears that the US is losing control of the coronavirus outbreak. Hopes of a quick economic recovery in the world’s largest economy have been dashed whilst adding pressure to Congress to agree a fresh stimulus package before the enhanced unemployment benefit scheme runs out on Friday. So far, the Republicans and Democrats have failed to reach an agreement and it is not clear whether Treasury Secretary Steve Mnuchin would be able to broker a deal by Friday.

Fed in focus
Attention will now turn to the Federal Reserve, which is not expected to adjust monetary policy today. Broadly speaking US economic indicators had been improving since the last FOMC and had covid numbers stabilised or declined then the Fed would have been discussing an improving recovery. 

However, with Florida recording a record number of covid cases and Texas hitting the grim 400,000 cases milestone – the outlook is deteriorating. Furthermore, the two areas which are particularly problematic the Fed has no control over – these are firstly the rising number of coronavirus cases and secondly the government’s fiscal response. 
Fed Powell warned over the economic uncertainty that lay ahead. With the situation rapidly deteriorating the Fed is expected to remain firmly dovish. The US Dollar’s movement will depend largely on Jerome Powell’s tone. 

Concerns over the health of the US economy are already rife. A very cautious tone from the Fed could see the US Dollar sell off deepen and gold shoot higher.

UK 2nd wave fears
Here in the UK, the number of coronavirus cases increased each day over the past week, for the first time since the April peak, raising concerns that a second wave could hit well before the winter. With staycations and vacations picking up movement particularly around the UK will be significantly higher than before raising the risk of spreading infections.

Second wave fears are over shadowing data from the British Retail Consortium that showed that consumer demand was returning. According to the BRC British retailers discounted their goods by less in July than in the previous months of May and June as consumer demand picked up amid the easing of lockdown restrictions.
Corporate earnings will be in focus with the likes of Barclays and Next reporting.

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