Europe Starts Firmer Ahead of Potentially Volatile Week

09/28/2020 10:00 am EST


Fiona Cincotta

MarketAnalyst, Currency Live

European bourses are seeing an upbeat start to the week, boosted by a strong close on Wall Street on Friday, on hopes of further stimulus and encouraging data from China, says Fiona Cincotta.

Risk on trading is boosting demand for equities, whilst the safe haven US Dollar slips away from its two-month high. 

Chinese factory profits continue to see steady growth, rising for the 4th consecutive month in August, buoyed by a partial rebound in commodity process and equipment manufacturing. Industrial firms’ profits grew 19.1% YoY in August. The data shows that whilst concerns are growing over a slowing economic recovery in Europe and the US, the economic recovery in China, the world’s second largest economy has been gathering momentum.

Is a US Stimulus Coming? 

Late on Friday the US Treasury Secretary Steve Mnuchin and House Speaker Nancy Pelosi agreed to start formal talks on a new coronavirus rescue package. There had been growing fears that with the US elections under two months away the two sides would struggle to reach a fiscal stimulus agreement; stimulus which is badly needed as the US economic recovery shows signs of stalling and the recovery in the labor market could even be reversing. 

This week is set to be a BIG week for event risk with Brexit talks, the first Biden–Trump live debate for the presidential elections along with a slew of data culminating in US non-farm payrolls. Volatility could be back with a bang this week. 

Brexit in Focus 

The pound is starting the week on the front foot amid mildly improving Brexit sentiment. The mood music surrounding trade talks has improved, which is offering its support to the pound. In the absence of any high-impacting UK data today, all eyes will be on Brexit headlines as Michael Gove meets with European Commission vice president Maros Sefcovic. The Internal Markets Bill still casts a shadow over talks. However, the fact that the EU hasn’t broken away from negotiations yet is encouraging. Frost’s negotiating team also reportedly say that a deal will be agreed. The clock is ticking towards the British government’s self-imposed deadline of 15 October, so Brexit headlines will take on even more importance than before.  

Rising Covid 

Rising covid cases in Europe and the UK and the threat of tighter restrictions could keep any gains in Europe in check. With Covid cases in the UK up 46% in a week and London on the brink of another lockdown, the next six months look set to be challenging for business across the board. 

FTSE Chart 


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