From lockdown to stimulus

Lockdown panic is easing on Tuesday, with European stocks paring Monday’s sharp losses and Wall Street eyeing a flat open having been spared much of the previous days sell-off.

While the initial panic may have passed, the risk of lockdown has not. The numbers are getting much worse by the day and more restrictions are being imposed as a result. Government’s around the world will be desperate to avoid full national lockdowns again but that is one option already being considered here in the UK.

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It was interesting to see the usual names getting hammered, while at the same time pandemic-proof tech staged a mini-comeback, perhaps giving credence to the growing lockdown risk being priced in once again. Even in the absence of a full lockdown, tight restrictions on work, gatherings and travel will still have significant economic consequences. It may soon be time for policy makers to step up again.

Stimulus will be a hot topic in the US today as Fed Chairman Jerome Powell and Treasury Secretary Steve Mnuchin appear before the House Financial Services Committee. With the Fed having done an extraordinary job in stabilizing the financial system and providing huge amounts of monetary stimulus, even adjusting its framework last month to allow rates to remain lower for longer, emphasis will likely fall on fiscal measures, or lack thereof.

Powell has repeatedly called for more stimulus to support the recovery but Congress has failed to find a compromise and hopes for a deal before the election are fading fast. That will leave households and businesses without support going into a troublesome winter period and could come with significant economic consequences.

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