Risk Aversion Sends Stocks Lower, Sunak's Winter Economic Plan In Focus

Slowing economic recover & rising covid cases drag on sentiment. Can Rishi Sunak's Winter economic plan boost sentiment?

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The deep sell off on Wall Street is spreading over into Europe, wiping out gains from the previous session. European bourses are a sea of red as risk off dominates amid rising concerns over resurging coronavirus infections and its potential to derail the fragile economic recovery.

Wall Street experienced a sharp decline after a series of warnings from the US Federal Reserve. Federal Chair Jerome Powell reiterated that the US economy still had a long way to go before recovery weighed on sentiment. His comments were supported by Fed Vice Chair Richard Clarida who considers the US economy to be in a “deep hole”. 

The Fed sees a strong case for additional fiscal support. However, another rescue package before the November elections is starting to look very unlikely.

Evidence of the slowing economic recovery was evident in yesterday’s PMIs, particularly in Europe where the service sector unexpectedly contracted. With covid cases rising and restrictions tightening the situation is only going to deteriorate over the coming months.

Rishi Sunak to the rescue?
UK Chancellor Rishi Sunak won’t be making a budget this year, instead, he will roll out a winter economic plan to see the UK through the coming months, which are set to be extremely challenging. With the furlough scheme set to end of 31st October, the markets have been concerned with what’s next? The centerpiece to Rishi Sunak’s plan, to be announced today, is expected to be a wage  support scheme similar to that in Germany. A scheme to subsidize wages of people in part time work, replacing the more expensive £39 billion furlough scheme. This should mean that the 4 million or so people that are neither in employment or out of employment on furlough, won’t necessarily face a cliff edge. This should at least soften the blow to the economy.

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