EEuropean markets have started to lose some momentum in recent days, as have US markets, which managed to close higher yesterday after two days of decline, although then retreated after hours after the announcement. Treasury Secretary Steve Mnuchin said all emergency Cares Act programs would expire at the end of this year, potentially putting the US economy on the verge of an economic cliff in the absence of a new tax package.
Without a new tax package, 12 million Americans would lose their unemployment benefits, while the Federal Reserve’s major lending programs would also disappear. It is therefore welcome that stimulus talks appear poised to restart after comments from mainstream Democrat Chuck Schumer that he would seek to resume talks with Republicans Mitch McConnell amid the surge in coronavirus cases in the country.
While we’ve seen decent gains over the past week or so following recent reports of several vaccine candidates, the markets seem to be turning their attention to more short-term factors, rather than the distant oasis of the vaccine. , and its delivery. The main focus of the markets now is not just how to get to this oasis, but how many businesses will be left behind before they get there, and what kind of economy will there be left if politicians do not get down to business.
This may help explain why the stock markets are now starting to lose some momentum, as fears of an extended shutdown begin to undermine some of that optimism. The US CDC has previously urged US citizens not to travel for Thanksgiving celebrations in a taste of what could happen next month, unless cases of the virus start to abate, as the day approaches. Christmas time.
We all know that a good part of the answer to the question of what kind of economy will remain at the end of the first quarter of next year is in the hands of central banks and politicians, and while central banks are still on the ground. , many politicians, especially in the US and the EU, have decided to start arguing on the sideline, with their team 3-0 with 30 minutes remaining.
In the United States, politicians are still no closer to a new fiscal stimulus package, with the US Treasury calling for the Cares Act by the end of the year, despite the surge in demands for weekly jobs yesterday, while the EU’s stimulus package was vetoed by Hungary and Poland. yesterday, and as such, he’s no closer to adoption than he was in the summer when he was initially beaten between France and Germany. Taking the football analogy I used earlier a little further, it is like bringing the ball back towards your own goal and sticking it into your own net, to put you even further behind, as time goes on. file.
Despite all the criticism leveled at the UK government in recent weeks, especially about its dime-based approach to local lockdown packages, it now appears that there is recognition that more needs to be done on the budget side, and the recent announcements of the Prime Minister Minister Boris Johnson appears to be suggesting that the government is now starting to think much longer term, although some details appear to be based more on wishful thinking than anything else.
Public sector borrowing for September saw another sharp rise of £ 35.4bn, bringing total borrowing for the year so far to just over £ 200bn. A lot of money is being made out of the amount of money spent, especially as these numbers are expected to continue for months to come, with concerns being raised in some quarters as to how all of this will eventually be paid for.
These are valid concerns and may well be at the root of some of the government’s recent missteps in funding certain sectors of the economy, including squabbling over the costs of school meals for children and regional lockdowns.
The recent decision to extend the holiday schedule until March next year, following England’s lockdown for the entire month of November, will only increase those costs, as well as recent reports that the government intends to embark on a green revolution.
For now, markets aren’t too concerned about this, as the UK isn’t alone in grappling with these issues, October borrowing is expected to see another strong increase, by around £ 31.5 billion.
As long as UK retail sales are affected, we saw a more positive story with the consumer helping to drive a decent rebound in Q3.
Since the April lockdown we’ve seen 5 straight months of decent gains, but it might just be as good as retail spending as we head towards year-end given recent actions by the government to reimpose lockdown restrictions throughout certain parts of the country. In September, retail sales rose 1.5%, but recent third-party studies have been somewhat mixed, with some suggesting a sharp slowdown in October numbers, while others like the latest survey on British Retail Consortium sales showed a pre-lockdown push which pushed numbers higher ahead of the November lockdown.
In contrast, sales at pubs and restaurants were down 33% as tightening foreclosure restrictions hit demand. Regardless of the October number, and expectations of a -0.3% drop, it will likely be one last hurray, before we see an even steeper drop in November numbers in a month’s time.
One thing seems certain that Q4 is likely to see a sharp slowdown from the resilience we saw in Q3.
The pound continues to be chopped up by mixed news from the EU / UK trade talks, after one of the EU negotiators tested positive for Covid-19, resulting in a brief suspension of negotiations, before restart online. Discussions about a possible deal on Monday continued to circulate as French President Emmanuel Macron added to the uncertainty by urging EU leaders to prepare for the lack of a deal.
EURUSD – continued to climb towards 1.1900 area and trendline resistance from September highs. The bias remains for a drift down towards the 1.1750 level, while it is below the 1.1900 area, but a break above 1.1920 could see 1.2000. A move below 1.1750 opens a return to the 1.1680 level, then the lows this month at 1.1600.
GBPUSD – re-examined the level of 1.3315 earlier this week but has so far been unable to break it. We need to go through 1.3320 to target the 1.3420 area. Support is currently entering the 1.3170 area, lower than last week’s low at 1.3106.
EURGBP – the bias remains for a return to the low of 0.8860, while below the 0.9000 zone. We need to move beyond trendline resistance near 0.9020 area to stabilize and signal a retest of 0.9080 area and 50 day MA.
USDJPY – while below the 104.30 level, the bias remains for a return to the lows this month at 103.18. A return above 104.30 brings the 105.00 area back.