Acombination of concern over setbacks in two vaccine trials, one from Johnson and Johnson, and another from Eli Lilly, as well as increasing concerns about the economic effects of tighter lockdown restrictions being implemented across Europe, saw equity markets stumble yesterday, though we have seen some stabilisation in Asia trade, with the result we could well see a more positive start for Europe this morning.
Not even a new product event from Apple, which saw the unveiling of the new iPhone 12 was able to lift the sombre mood as investors took some profits after two weeks of pretty decent gains, as US stocks finished lower for the first time in four days, with Apple shares also falling back in a classic case of buy the rumour, sell the news, after the company unveiled 4 new 5G iPhones.
By and large none of what happened yesterday with respect to the vaccine should have been too much of a surprise, clinical trials always suffer setbacks for varying reasons throughout the lifecycle of a testing regime, and the pursuit of a coronavirus vaccine is unlikely to be any different in this regard, and so it is proving.
US lawmakers also appear to be no nearer achieving their goal of passing some sort of fiscal stimulus before next month’s election, with the Democrats Nancy Pelosi appearing equally as unyielding as the Republicans on the other side.
One other reason for yesterday’s uncertainties appears to be rising dissenting voices about the implementation of some of the new UK lockdown measures, with both the ruling Conservative government, along with the opposition Labour party, unable to speak with a single voice over what is the next best course of action, with respect to the current lockdown restrictions across various parts of England.
The increasing uncertainty over the future of various leisure and other services businesses in the event of an emergency circuit breaker lockdown being implemented in the next two weeks, saw some heavy declines in travel and leisure stocks yesterday, with pubs, restaurants and airlines all coming under pressure.
This uncertainty is unlikely to diminish as the political rhetoric over such a circuit breaker is likely to increase as we head towards the school half term break, which is when such an event could well happen. What doesn’t appear to be being discussed is the effect such a measure would have on already fragile business models, and where the scientific evidence is that any such measure would work in any other way than push the rise in cases further out into the winter months, and closer to Christmas.
The pound also slid back on this basis, along with increasing concerns about the future of EU/UK trade talks, as the 15th October deadline signposted by the UK government gets ever closer, while further idle chatter about the prospect of negative interest rates didn’t help, sending UK bank shares sharply lower.
Ordinarily it is the job of policymakers, whether they be politicians or central bankers, to try and inspire confidence, that they actually know what they are doing.
In the case of the UK government, as well as the official opposition, neither party appears to have a clue as to what to do next, seemingly content to lean towards the science view of a new lockdown, without even looking at the possible counterfactuals, of crushing business and consumer confidence for years to come, while Bank of England governor Andrew Bailey resorts to the same tired old tropes about the effectiveness of negative rates, seemingly oblivious to the seriously damaging effects they would have on, not only the banking sector, but also on the size of pension deficits of a lot of major businesses. You really couldn’t make it up.
Later today Prime Minister Johnson is scheduled to hold a conference call with Ursula von de Leyen in an attempt to try and unlock a deal, while on the central banks front we will get to hear from the likes of Bank of England chief economist Andrew Haldane, he of the V-shaped recovery, while Fed vice chair Richard Clarida will also be speaking at an Institute of International Finance event.
On the data front we have the latest EU Industrial production numbers for August which are expected to show a rise of 0.8%, a sharp slowdown from the 4.1% seen the previous month.
EURUSD – having failed to overcome the 1.1830 area the euro has slipped back below the 50-day MA and as such could well drift lower again. The move back below 1.1780 now retargets a move back to the 1.1615 area.
GBPUSD – the failure to hold above the 1.3020 area has seen the pound slip back below 1.2980 with the rusk that a move below trend line support at 1.2900 could see a move back to the 1.2820 area. We need to see a move back above 1.2980 to stabilise.
EURGBP – rebounded from the 0.9020 area, but needs to move beyond the 0.9130 area to undermine the downtrend that has been in place from the September peaks. Below 0.9020 targets a move towards 0.8920.
USDJPY – currently has cloud resistance at the 106.20 area, and while below this level the risk is for a move back to the 104.80 area
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