US Stimulus Hopes Lift Risk Appetite

Wall Street finished sharply higher lifted by fiscal stimulus hopes. The upbeat mood spilled over in Asia and is helping Europe towards a positive start this morning.

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Wall Street finished sharply higher lifted by fiscal stimulus hopes. The upbeat mood spilled over in Asia and is helping Europe towards a positive start this morning.

Stocks fells sharply earlier in the week following Trump’s tweet that he was abruptly pulling the plug on bipartisan fiscal stimulus talks. However, after some back-pedalling it now looks as though smaller more targeted standalone bills could be agreed. The overriding expectation by the markets at this point is that some form of stimulus is coming, sooner rather than later and this is driving a risk on rally. Riskier assets are back in favour, whilst safe havens such as the US Dollar and Japanese Yen are trading on the back foot. 
Dovish minutes from the US Federal Reserve helped underpin the risk on rally whilst keeping pressure of the US Dollar.

House prices continue to rise, but dark clouds forming
House builders will once again be under the spotlight after the RICS survey showed that house price growth hits an 18-month high, owing to pent up demand, people reassessing their housing needs post lockdown and the stamp duty holiday. However, the good times aren’t here to stay. The outlook is darkening amid expectations of a jump in unemployment over the coming months as the Chancellor’s furlough scheme comes to and end at the end of this month. The scheme will be replaced by a less generous scheme whereby companies will have to shoulder more of the cost. 

Covid cases rising
European bourses are doing well at shrugging off rising covid cases. France recorded a record number of new infections, over 18,000 and the UK is not that far behind. The British government is expected to apply tougher restrictions in the north of the UK, in a attempt to stem the spread of the virus, this will almost certainly hamper the very fragile recovery in the hospitality sector, particularly.

Brexit talks lacking progress 
For the Pound, the only the real point of interest is Brexit. And much like the US stimulus talks, there has been very little progress to speak of. Boris Johnson reiterated that an outline for a deal must be ready by 15th of October or he is walking away from talks. With the pound trading at its current levels of $1.2930 the assumption is that at least a bare bones deal will be achieved by the end of next week, to allow talks to continue. BoE’s Andrew Bailey is due to speak, he is expected to snatch attention away from Brexit at least for a while.

Jobless claim & stalling recovery
Looking further ahead US jobless claims will come under the spotlight. The data is expected to show 820K Americans signed up for unemployment benefit, as the recovery in the labour market stalls, highlighting just how necessary additional fiscal stimulus is.

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