US Open – Investors remain optimistic

Deal still possible

European markets are a little mixed this morning, while US futures are slightly in the green with investors on that side of the pond buoyed by the prospect of a stimulus deal.

I still remain skeptical though, as the Democrats have little reason to cede too much ground and the Republicans seem extremely reluctant. Democrats are unlikely to be blamed in the event that stimulus isn’t forthcoming, especially after Trump cancelled talks earlier this week, and they have a growing lead in the polls. They may find it easier to resume after the election, even if that comes at a cost now.

Of course, this may all be the usual brinkmanship but the fact that this is still happening in October, so close to election day and as large companies prepare to lay off thousands of workers gives me the impression there’s more to it. For that reason, investors may be a little overoptimistic and could pay the price short-term.

That said, it’s interesting to see this optimism against the backdrop of Biden’s lead widening in the polls. Perhaps we’re focusing too much on stimulus prospects and not enough on the desire of investors not to see long, drawn-out and hostile legal challenges after the election.

Should Biden’s lead continue to grow, it may be a rally of relief, rather than a celebration of the result, itself.

No v-shaped recovery in the UK, stimulus incoming

The v-shaped recovery in the UK that always looked more Nike swoosh than v and may now resemble more of a w as the second wave hits, has suffered another setback, with GDP data for August being less promising than hoped despite the success of the government’s eat out to help out scheme. Despite the economy growing for the last four months, it remains 9.2% smaller than its pre-Covid self, leaving an awful lot of lost ground to make up.

As mentioned, eat out to help out did exactly what is said on the tin, with food services and accommodation enjoying a 69.7% bump in August. There wasn’t much of a response in the pound to the data, despite the undershoot.

I guess the two main takeaways here are that the BoE will need to ease further this year, with growth falling well short of what they expected and more restrictions coming, and the government is going to need to do more as well, with the Chancellor reportedly preparing targeted furlough measures for businesses forced to shut in the North of England, something that may be necessary in other parts of the country in the coming months.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam