Another difficult day for stocks in Europe was followed by another decline in US stocks as the penny continued to drop that there would be no stimulus package delivered to the US economy before next month’s election.
The endless procrastination, from both sides, the Democrats and the Republicans is unlikely to yield any sort of deal before November 3rd given that both sides have different views as to what they will accept and to all intents and purposes appear to be going through the motions so as to give the appearance of trying to agree something.
Health care stocks were at the forefront of the weakness in both US and UK stocks as it slowly becomes apparent that the path to a vaccine is unlikely to be a smooth one, at a time when the prospect of additional lockdown restrictions being applied across the world became ever more apparent.
Last night the French government announced a further tightening of restrictions across 8 French cities, including Paris, with 9pm to 6am curfews. These are expected to last up to six weeks.
In the UK, the government in Northern Ireland set out its plans for its own mini 4 week lockdown, while the Welsh government was making plans to close the border with England. All the while the UK government is meeting resistance to its plans to implement tighter restrictions in the cities of Manchester and Liverpool.
If there was unanimity with respect to the March lockdown, there is anything but in today’s climate, with the air thick with mutiny, while Labour Party leader Keir Starmer has called for a two-week countrywide “circuit breaker” lockdown in an attempt to slow down the spread of the infection, across the whole of England.
This inevitably has prompted fierce resistance from a number of different quarters, not least those regions which currently have low infection rates, with the prospect of any sort of new lockdown being labelled as a business breaker, particularly since with a two week lag time with respect to new cases, it is hard to gauge whether a two week lockdown would be successful or not.
With the prospect of an imminent US stimulus plan diminishing by the day, rising infection rates prompting tighter restrictions across Europe, and little prospect of a vaccine before the middle of next year, is it any wonder that investors are starting to get a little twitchy, with European markets set to open lower this morning.
On the Brexit front there does appear to be some grounds for optimism in that the UK government looks like it won’t stick to its own self-imposed 15th October deadline for a deal with the EU over trade, though this was never likely.
As with all things with the EU, talks are likely to go right up to the deadline of the end of this year, as each side waits for the other to blink. The fat lady hasn’t even begun to clear her throat yet.
On the data front we have the latest US weekly jobless claims which are expected to come down further to 810k, from 840k, while we also have more central bank speakers from the US Federal Reserve, along with a speech from ECB President Christine Lagarde, at the IMF/World Bank meetings.
EURUSD – continues to look a little soft with resistance at the 1.1780 area, and the prospect of further weakness towards the 1.1615 area. Above 1.1780 retargets the 1.1830 level.
GBPUSD – continues to whip around but crucially was unable to get back above the recent highs at 1.3080, after hitting a low of 1.2863 yesterday. Brexit headline is likely to be the primary driver here, with the risk very much to the upside, and for a move towards 1.3220 initially.
EURGBP – the failure to move above downtrend line resistance at 0.9125 from the September peaks yesterday has kept the downside intact, and a move below the 0.9000 area, has the potential to open up further declines towards 0.8920.
USDJPY – has continued to drift lower with support at the 104.80 area. A move below 104.80 targets a return to the September lows at 104.00. Resistance remains all the way back at cloud resistance at the 106.20 area