European equities had an uncertain start on Friday, with traders weighing the worsening pandemic against pledges from lawmakers on both sides of the Atlantic to bolster Covid-19 support schemes.
The region-wide Stoxx 600 was flat in mid-morning trade, the UK’s FTSE 100 inched up 0.1 per cent and Germany’s Dax slipped 0.4 per cent. The cautious moves followed a rocky week of trading that saw the Stoxx 600 close at a three-month low on Thursday and the FTSE 100 on track for its worst monthly showing since May.
Nerves were sparked by rising infections and renewed lockdown measures in the region, a more cautionary tone from policymakers and disappointing eurozone data that pointed to a slowing economic recovery.
“September has basically been a microcosm of the year,” said Fahad Kamal, chief investment officer at Kleinwort Hambros, Société Générale’s private banking and wealth management division.
The month began with sky-high equity prices, with investors optimistic that the economic recovery was in full swing, followed by a broad sell-off as traders grew concerned that stocks were overvalued and the recovery was waning.
Mr Kamal added that the moves amounted to a healthy correction.
On Thursday, the UK government announced plans to replace the furlough scheme with a Germany-style wage subsidy plan, in which the Treasury would subsidise people who worked at least a third of their usual hours. Employees unable to work would not be eligible, however. “I cannot save every business. I cannot save every job,” said chancellor Rishi Sunak.
Sven Jari Stehn, chief European economist at Goldman Sachs, said he was sceptical that the scheme would be enough to encourage employers to retain a large proportion of employees on furlough. He expected 2.2m workers to move off the furlough scheme into unemployment.
The yield on European government bonds was steady, with the 10-year German benchmark little changed at minus 0.517 per cent. Gold edged higher to $1870.76 a troy ounce, after hitting a two-month low earlier in the week as the dollar rallied.
In Turkey, the banking regulator relaxed curbs that made it harder for foreign investors to trade the Turkish lira — a move billed by authorities as a step towards “normalisation” after a period of interventionist currency management.
The regulator said it was loosening previously tight limits on the volume of currency derivative transactions that Turkish banks could perform with foreign counterparties. The lira, which has fallen more than 20 per cent against the dollar this year, slipped a further 0.4 per cent to trade at $7.59.
Overnight in the US, investors were cheered by hopes for further fiscal support. Wall Street stocks reversed their early Thursday losses after Nancy Pelosi, Democratic speaker of the House of Representatives, said she was “ready for negotiation” on a new coronavirus relief plan.
Congressional leaders and the White House have failed to agree more fiscal stimulus for the US economy, and talks stalled several weeks ago.
Futures contracts suggested the benchmark S&P 500 and the tech-heavy Nasdaq 100 would both rise 0.1 per cent when Wall Street opened later on Friday. This week’s choppy run in global equities hit the S&P, with the index up less than 1 per cent in the year to date.
Further fiscal stimulus is crucial, said Mary Nicola, portfolio manager at PineBridge Investments. “The global economy is functioning on fiscal and monetary training wheels, and if you take those training wheels off it will falter.”
US economic data just out have presented a mixed picture, with home sales up in August but the number of Americans filing for first-time jobless benefits rising last week.
Encouraged by the prospect of renewed stimulus measures, stocks in the Asia-Pacific region closed broadly higher on Friday. Japan’s Topix was up 0.5 per cent and China’s CSI 300 rose 0.2 per cent. However, Hong Kong’s Hang Seng slipped 0.3 per cent, weighed down by the healthcare and cyclicals sectors.