Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Stimulus Scepticism, Starts To Weigh On Stocks

By CMC Markets (Michael Hewson)Stock MarketsOct 22, 2020 06:09
Stimulus Scepticism, Starts To Weigh On Stocks
By CMC Markets (Michael Hewson)   |  Oct 22, 2020 06:09
Saved. See Saved Items.
This article has already been saved in your Saved Items

We saw another day of losses for European and US markets yesterday as investor impatience with the phoney war going on between the Democrats and Republicans continued over the prospect of a stimulus plan before the 3rd November US election.

This scepticism looks set to spill over into this morning as Asia stocks also fell sharply, though a sharp IMF downgrade for the region also didn’t help sentiment, and this negative tone looks set to continue this morning with markets in Europe also set to open lower.

As far as a US stimulus package is concerned the penny appears to be finally dropping that there is unlikely to be a plan that will be able to get past the Republicans in the US Senate, even if Nancy Pelosi and Steve Mnuchin were able to put something down on paper, in their various short phone calls over the past few days.

The Republicans in the Senate want to advance a much smaller relief bill of $500bn, well below the $2.1trn bill the Democrats want, and also well below the $1.9trn bill that President Trump has said he would be happy to sign.

This impasse looks set to continue well past next month's election date, because even if the Democrats were to win, they would still be unable to enact anything until Joe Biden was sworn in as President in January next year. In the event President Trump were to win a second term, the mathematics for the Senate would still need to change for him to be able to have another go at pushing a bill through.

The President will also have another opportunity to make inroads into Joe Biden’s poll lead later this evening with the third and final debate between the two in Nashville. Let’s hope it’s a more edifying and constructive affair than the last one?

While equity markets swooned over the unlikelihood of a stimulus package being passed there did appear to be a more positive tone with respect to UK/EU trade talks, with the news that they could restart as soon as today, after Michel Barnier, the EU’s chief negotiator conceded that the EU would have to compromise, as well as the UK.

The pound reacted well to this new development, and while we’ve been here before on the optimism front, there is the distinct prospect that a pathway to some form of agreement is opening up.

Given the current economic environment, and the havoc being wreaked by a second wave of coronavirus cases across the UK, as well as the rest of Europe, with existing restrictions being extended, and lockdowns being imposed over wider areas, pressure on both sides is likely to increase to reach a mutually agreeable deal, rather than wreak more havoc on an already desperate economic situation.

Politicians would not be forgiven for putting their own ideologies ahead of the wellbeing of their populations at such a perilous economic time.

Chancellor of the Exchequer Rishi Sunak will also be making an economic statement later today in Parliament where he is expected to outline further measures of support for struggling businesses in high coronavirus alert areas in Manchester, Birmingham and London. Tier 2 regions receive much less generous support than those in tier 3, with a number warning that without help they may well not reopen.

The Chancellor certainly needs to pull a rabbit out of his hat given how badly the government has handled the financial side of the ledger in the past two weeks, quibbling over sums in the region of £5m, at a time when public sector borrowing since March has seen over £200bn added to the national debt, with nary a murmur from the bond market.

Politically it’s awful optics, and economically it’s a false economy, because if the jobs don’t come back on an economic re-opening, the cost in other areas will simply be greater, in terms of retraining as well as additional benefits.

On the data front we’ll be seeing the latest CBI industrial trends data for October, in terms of business optimism, orders and selling prices, and they are likely to paint a fairly weak picture of the UK economy.

In the US we have the latest weekly jobless claims data, which saw a surprise jump to 898k last week, which was a seven-week high, raising concerns that the jobs data has found a base and could well start to increase in the weeks leading up to the election and Thanksgiving after that. Expectations are for an increase of 870k; however, it wouldn’t surprise to see another jump higher.

Yesterday’s Fed Beige Book of economic conditions was a little more encouraging, however it did say that growth was tepid, though employment growth was still positive if a little slow, with manufacturing performing the best.

EURUSD – the break above the 1.1800 level potentially opens up a return to the September peaks at 1.2010, however there is also minor resistance at 1.1910. Support should now come in at the 1.1780 area and 50-day MA, which needs to hold for this to unfold.

GBPUSD – broken to the upside, through the 1.3080 area, with the 1.3250 area the next target with the September peaks of 1.3480 the bigger resistance area. Support now comes in at the 1.3070 level, and below that at 1.2860.

EURGBP – the break above trend line resistance at 0.9110 saw the euro fail at the 0.9160 area in a classic bull trap, before sliding back again, with the 0.9010 area the main key support. A move below 0.9000 opens up a return to the 0.8920 area.

USDJPY – yesterday’s slide below the 104.80 area now retargets the 104.00 area and September lows. The 104.80 area now becomes resistance. A move below 104 00 targets a return to the March lows at 102.00.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original Post

Stimulus Scepticism, Starts To Weigh On Stocks

Related Articles

Stimulus Scepticism, Starts To Weigh On Stocks

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The inherent concept of such investments means that they are not suitable for the investor seeking income from such investments, and are only suitable for those who have the required experience and understand the market risks. You should carefully consider your investment objectives, level of experience, and seek advice from an independent financial advisor if you have any doubts.
Continue with Google
Sign up with Email