Risk On Amid US Stimulus Hopes

Hopes that a US fiscal stimulus package could be just around the corner, in addition to upbeat US data, is driving demand for riskier assets as trading kicks off in Europe.

Charts (3)

Europe is pointing to a stronger start as optimism from the US spills over. Hopes that a US fiscal stimulus package could be just around the corner, in addition to upbeat US data, is driving demand for riskier assets as trading kicks off in Europe.

US ADP data smashed expectations with 749K new jobs created in the private sector, a significant jump up from the upwardly revised 481K recorded for August. The solid report not only beat forecasts but also bodes well for Friday’s non-farm payroll. Still, this is unlikely to change the overall trend in the market of a slowing rebound. It would take huge additional stimulus and clarity which comes following the US elections to boost stalling growth.

Better late than never
Additional fiscal stimulus could be just around the corner in the US after US Treasury Secretary Steve Mnuchin said that talks are progressing very well. He offered a $1.6 trillion package and said that an understanding could be reached today (Thursday). Signs of upcoming fiscal relief in the world’s largest economy is boosting risk appetite and the risk on trade, supporting stocks as reflected by rising equity markets and US futures and demand for riskier currencies.

WTI over $40 (just)
Hopes of US stimulus is keeping oil steady above $40 after a strong runup overnight. Demand fears have taken the black gold on a wild ride over the past few sessions and across September as a whole. WTI slumped over 5% last month amid fears that resurging covid infections and tighter restrictions to stem the spread of the virus would hit demand again.

R rate in UK falling
In the UK encouraging news regarding the R rate is adding to the improved market mood. The latest study from Imperial College shows that the latest lockdown restrictions are working and the R rate is on its way back down towards the golden figure of 1. This raises the chances that the UK will avoid a economically ravaging national lockdown part 2.

Manufacturing PMIs
Attention will now turn to manufacturing PMI data for further clues over the recovery of the UK economy. Expectations are for a confirmation of the initial 54.3 reading as the pace of expansion remains strong but eases back from the August’s level, which saw the sector expand at its fastest rate in 6 year at 55.2. Manufacturing has led the economic recovery so far. Investors will be keen to see that the strength in the sector is holding up whilst the service sector comes under increasing pressure from local lockdowns and nervous consumers.

FTSE Chart



More from FTSE 100

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.