European equity indices and US index futures extended their gains following a big rebound on Wednesday, while in FX the dollar traded mixed against other major currencies.
Overall, the markets were in a holding pattern. Investors were awaiting fresh direction from Wall Street as the focus remains firmly on stimulus there, while concerns continue to grow over the impact of a second wave of coronavirus, as cases continue to sweep across Europe. FX investors were also keeping an eye on the latest jobless claims data, due for release shortly.
Sentiment has been dominated by talks of fiscal stimulus over the past couple of days. Stocks slumped when Donald Trump abruptly called off negotiations on a comprehensive bill on Tuesday, before the US President urged Congress to pass a series of smaller, standalone bills, on Wednesday. These bills include a bailout package for the airline industry, which has been battered by the pandemic. Stocks more than made up their losses from Tuesday. Today, Trump has reportedly said that it looks like there is a really good chance to reach a deal on Covid aid, and that talks are starting to be productive.
Stimulus talks are on one minute, they are off the next. They seem to be back on again, and stocks are responding positively. But investors will be wondering what might be next, and whether this will be enough to support the markets at these elevated levels, given a growing list of concerns for investors. I am not too convinced the rally will hold this time. As well as Brexit and US election uncertainties, you have a resurgent coronavirus causing more restrictions and posing great risk to the economic recovery. Indeed, several European nations are seeing record rises in daily cases. Initially, the second wave was mainly dominated in Western Europe, but now the epicentre is moving east. If cases continue to rise, more restrictions will be announced by governments.
- Russia reported 11,493 new daily infections, which was just shy of the record hit in a single day back in May, while 191 people have died in the past 24 hours
- Poland, Ukraine, Slovakia and the Czech Republic have reported record jumps in cases
- Germany reported its biggest daily rise in infections since April
- Among the new restrictions, Italy has made face masks compulsory in outdoor spaces; cafes and bars will remain shut in Brussels for two weeks, while in the UK the restrictions are to be tightened further.
Jobless claims up next
Jobless claims have halted their sharp declines over the past several weeks, which is not a good sign obviously. The headline number is expected to come in at 820K, down 17 thousand from the week before. Continuing claims are expected to drop to 11.4 million. However, there will be no figures from California for a second week, where applications are put on hold.
\Source: ThinkMarkets and TradingView.com