Investors are growing increasingly unimpressed with the near-term prospects for the global economy and the markets are suffering the consequences.
Rising Covid cases, a fiscal void in Washington and monetary policy caution is taking its toll on investor sentiment as we head into a challenging winter period, fraught with uncertainty.
The economic data, particularly in Europe, is already highlighting weaknesses in the hugely important services sector and with Covid cases rising and governments being forced to re-impose restrictions, that’s unlikely to change. It could be a difficult few months for investors.
Of course, there is one obvious thing that could change all of that, a vaccine. Trump remains as determined as ever to have something to dangle in front of voters in time for the November election, something that is becoming increasingly challenging. Even if one ticks all the boxes, widespread distribution won’t be available until spring next year. Still, an announcement and roadplan would certainly buoy investors. November could be very interesting.
UK announces new job and business support measures
There may be a fiscal void in Washington but Downing Street today came out firing with new plans to support employment over the next six months, during which new restrictions will once again put a significant squeeze on many businesses. The new scheme will aim to protect as many viable jobs as possible by subsidizing employees that work at least a third of normal hours.
Of course, this will not protect all of the people that were covered under the furlough scheme so we should still see a significant rise in unemployment when it ends next month. Hopefully the number will be much reduced though, as a result of today’s announcement. Accompanying this was support for businesses that will also face an extremely challenging six months.
Oil stable for now but downside pressure remains
Oil prices have stabilized in recent days, with WTI hovering around the $40 mark after coming under heavy pressure earlier this week. Prices remain vulnerable despite the fact that they have settled as the week has progressed. The risks to the outlook remain to the downside due to the rising Covid numbers across Europe which could necessitate further action from OPEC+ before the end of the year. It could be this that has prevented oil prices falling further this week, after Saudi Energy Minister Abdulaziz bin Salman last week warned against shorting oil.
Gold hits two month low
Gold hit a two month low today and remains under pressure as support for the dollar continues to grow. The yellow metal clearly has not lost its correlation with risk, with the dollar continuing to be the preferred save haven during times of turbulence. If the next month is going to be a challenge for risk markets, the dollar could have more downside to come yet. The next barrier to the downside is $1,800, which could provide some support in the near-term.