Banks suffer as sunak highlights potential messy end of furlough scheme

Despite widespread expectations of a multi-billion spending package to raise employment, banks are being hit hard as traders consider the repercussions of the March withdrawal of the furlough scheme.

• European markets take a breather after recent gains.

• Banks hit as Sunak plans highlight potential for future job losses.

• Chancellor expected to bring job-focused spending package.

European markets are largely treading water this morning, with recent vaccine-led gains starting to fade once again. Donald Trump may have reminded us of just how impressive the Dow's break through 30,000 is, yet it was arguably his decision to allow the transition towards a Biden presidency which has paved the way for such market gains. With the US election, Brexit, and vaccine risks all behind us by the start of 2021, there is a strong chance that we will continue to see equities outperform in the months ahead.

Financial stocks are in the firing line this morning, with NatWest, Lloyds, and Barclays all suffering significant losses at the open. That decline comes off the back of a particularly fruitful period for the banks, with vaccine announcements from Pfizer, Moderna and AstraZeneca helping to lessen the risk of an even more drawn out economic collapse. Fears that a wave of bankruptcies would cripple the banks has failed to arrive thus far, with Rishi Sunak's spending spree helping to stave off many of the worst economic outcomes from such a period of economic contraction. However, while the economic picture doesn't look too bad for now, there is a risk that banks will suffer in the event we do see a sharp rise in job losses come March.

Rishi Sunak is widely expected to announce a fresh £4.3 billion stimulus package aimed at staving off a surge in unemployment in the coming months. The furlough scheme has provided a critical backstop to avoid mass unemployment, yet the government will be keen to avoid a steep rise in job losses once that programme ends in March. With the OBR forecasting that the end of the furlough scheme could see unemployment spike from 4.8% to 8% by the summer, it is clear that the government will have to extend or get the economy running as soon as possible. Thus today's announcement is likely to be very jobs focused, with Sunak seeking to minimise the repercussions of a March end to the furlough scheme.

Ahead of the open we expect the Dow Jones to open 44 points lower, at 30,002.