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Europe Opens Mixed On China Optimism and Covid Concerns

Article By: ,  Senior Market Analyst
October 12, 2020 4:33 AM

European bourses are heading out of the blocks in a mixed fashion, following on from gains in China on hopes that President Xi Jinping will announce further reforms which could drive foreign capital inflows at a speech on Wednesday. The risk on mood is underpinning equities whilst dragging on the safe haven US Dollar.

However rising covid cases both in the UK and on the old continent plus Brexit concerns coming to a head could keep the lid on any upwards movement and is keeping the FTSE in the red.

Covid measures
Prime Minister Boris Johnson is set to step up efforts to contain the spread of coronavirus on Monday announcing a new system which will result in millions of Britons coming under tighter lockdown restrictions. 
The toughest measures are expected to be focused on the North of England. The hospitality sector will bare the brunt of the new measures; measures which threaten to choke an already very fragile recovery.
In anticipation of the new tighter restrictions, Chancellor Rishi Sunk, on Friday, announced additional support for workers in areas affected by local lockdowns. However, with the furlough scheme ending at the end of this month, a surge in unemployment is inevitable. 

Tighter restrictions across Europe
The UK is by no means alone in tightening restrictions, Madrid has banned all non-essential travel in and out and France also introduced tighter curbs in some cities. It’s not all bad news with flights between London and New York potentially opening soon.

US stimulus negotiations
Looking ahead US stimulus negotiations will remain in focus. Negotiations for a broader package have slowed although a lighter programme is still being discussed. Any headlines regarding stimulus negotiations between Democrats and Republicans will drive the markets given the bare economic calendar.

Brexit deadline looms
Brexit will be in focus across the week ahead of the 15th October self-imposed deadline set by Boris Johnson. Whilst both the EU and the UK agreed that the latest talks saw progress, significant differences still remain particularly over fishing, an industry which represents just 1% of the UK economy but represents something much larger politically. If a bare bones deal is not outlined by Friday, the British government has aid it will walk away from negotiations. With GBPUSD trading over $1.30 the assumption in the market is that a very basic trade dal outline will be in place. Should the UK leave the negotiating table, the FTSE250, a more domestic focused index, could come under heavy pressure,

FTSE Chart


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