Cautious Fed and Second Wave Fears Drag On Sentiment
Wall Street closed mixed, Asian shares fell overnight and Europe is pointing to a lower start following a reality check from Federal Chair Jerome Powell
Share this:
Wall Street closed mixed, Asian shares fell overnight and Europe is pointing to a lower start following a reality check from Federal Chair Jerome Powell. The gloomy outlook from the Fed combined with fears of a second wave of coronavirus in the US is keeping the lid on risk sentiment.
Downbeat economic projections from the Fed dashed any lingering hope of a V-shaped economic recovery from the coronavirus pandemic. The Fed expect the US economy to contract -6.5% this year with unemployment to fall to 9.5%. On a more positive note the Fed forecast 5% GDP growth in 2021 along with unemployment of 6.5%. However, the Fed will keep rates at 0 until the labour market recovers in 2022. The message was clear, this will be a long rocky road to recovery, but the Fed has your back. Markets opted to focus on the outlook rather than the support.
OECD sees UK contract -11.5%
The dovish comments from the Fed, coupled with the depressing outlook came hot on the heels of the OECD’s dire forecasts yesterday. The OECD predicted that the UK will suffer the worst damage from the coronavirus crisis from any country in the developed world, with GDP expected to contract -11.5% in 2020, outpacing falls in the US and among European peers such as Germany, France, Italy and Spain. The more draconian measures implemented to curb the coronavirus and the more dependent an economy is on the service sector, the longer the road to economic recovery.
The dovish comments from the Fed, coupled with the depressing outlook came hot on the heels of the OECD’s dire forecasts yesterday. The OECD predicted that the UK will suffer the worst damage from the coronavirus crisis from any country in the developed world, with GDP expected to contract -11.5% in 2020, outpacing falls in the US and among European peers such as Germany, France, Italy and Spain. The more draconian measures implemented to curb the coronavirus and the more dependent an economy is on the service sector, the longer the road to economic recovery.
Whilst the FTSE is made up of primarily international stocks, the FTSE 250 is more domestically focused, so we could expect to see the recovery in that index lag behind that of the FTSE 100. The Pound is under pressure against both the US Dollar and the Euro.
There had been a growing disconnect between the economic reality that the global economy is facing and the risk on rally in the stock markets. The Fed’s comments may have given the markets the dose of reality that was needed to start to reduce that disconnect.
Fears of a second wave
Whilst economies across the states continue to reopen fears are growing of a second wave of the virus in the world’s largest economy. Hospitalisations are rising in California, adding to worrying trends in Florida and Texas.
Whilst economies across the states continue to reopen fears are growing of a second wave of the virus in the world’s largest economy. Hospitalisations are rising in California, adding to worrying trends in Florida and Texas.
Looking ahead
The economic calendar in Europe is light. The group of Euro Finance ministers will meet today to discuss the EU recovery package. The frugal four are reportedly ready to climb down, potentially offering support to the Euro.
Other than that attention will be on US jobless claims data for further signs of recovery in the US labour market. Continuing applications could give further insight as to the speed at which people are being hired and therefore the strength of the recovery. Disappointment could heighten risk off trading pulling stocks lower whilst boosting US Dollar.
Wall Street closed mixed, Asian shares fell overnight and Europe is pointing to a lower start following a reality check from Federal Chair Jerome Powell. The gloomy outlook from the Fed combined with fears of a second wave of coronavirus in the US is keeping the lid on risk sentiment.
Downbeat economic projections from the Fed dashed any lingering hope of a V-shaped economic recovery from the coronavirus pandemic. The Fed expect the US economy to contract -6.5% this year with unemployment to fall to 9.5%. On a more positive note the Fed forecast 5% GDP growth in 2021 along with unemployment of 6.5%. However, the Fed will keep rates at 0 until the labour market recovers in 2022. The message was clear, this will be a long rocky road to recovery, but the Fed has your back. Markets opted to focus on the outlook rather than the support.
OECD sees UK contract -11.5%
The dovish comments from the Fed, coupled with the depressing outlook came hot on the heels of the OECD’s dire forecasts yesterday. The OECD predicted that the UK will suffer the worst damage from the coronavirus crisis from any country in the developed world, with GDP expected to contract -11.5% in 2020, outpacing falls in the US and among European peers such as Germany, France, Italy and Spain. The more draconian measures implemented to curb the coronavirus and the more dependent an economy is on the service sector, the longer the road to economic recovery.
The dovish comments from the Fed, coupled with the depressing outlook came hot on the heels of the OECD’s dire forecasts yesterday. The OECD predicted that the UK will suffer the worst damage from the coronavirus crisis from any country in the developed world, with GDP expected to contract -11.5% in 2020, outpacing falls in the US and among European peers such as Germany, France, Italy and Spain. The more draconian measures implemented to curb the coronavirus and the more dependent an economy is on the service sector, the longer the road to economic recovery.
Whilst the FTSE is made up of primarily international stocks, the FTSE 250 is more domestically focused, so we could expect to see the recovery in that index lag behind that of the FTSE 100. The Pound is under pressure against both the US Dollar and the Euro.
There had been a growing disconnect between the economic reality that the global economy is facing and the risk on rally in the stock markets. The Fed’s comments may have given the markets the dose of reality that was needed to start to reduce that disconnect.
Fears of a second wave
Whilst economies across the states continue to reopen fears are growing of a second wave of the virus in the world’s largest economy. Hospitalisations are rising in California, adding to worrying trends in Florida and Texas.
Whilst economies across the states continue to reopen fears are growing of a second wave of the virus in the world’s largest economy. Hospitalisations are rising in California, adding to worrying trends in Florida and Texas.
Looking ahead
The economic calendar in Europe is light. The group of Euro Finance ministers will meet today to discuss the EU recovery package. The frugal four are reportedly ready to climb down, potentially offering support to the Euro.
Other than that attention will be on US jobless claims data for further signs of recovery in the US labour market. Continuing applications could give further insight as to the speed at which people are being hired and therefore the strength of the recovery. Disappointment could heighten risk off trading pulling stocks lower whilst boosting US Dollar.
Related tags:
Latest market news
Open an account in minutes
Experience award-winning platforms with fast and secure execution, and enjoy tight spreads from 0.5 pts on FX and 0.3 pts on indices.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.forex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.