Europe to open lower as Trump pulls plug on fiscal stimulus

European markets are heading out of the bloc slightly lower as the risk off drive fades following steep losses on Wall Street. President Tump pulling the plug on stimulus talks until after the elections hit risk sentiment hard in the US session, with riskier assets such as stocks sharply out of favour, whilst investors sought out the safe haven protection of the US Dollar. 

Wall Street stocks bled our over 1% following the announcement on Trump’s twitter feed. Immediately following the tweet the S&P dived 2%. Much of the gains that we have seen over the past few weeks have been on additional fiscal stimulus hopes. Without the fiscal support there are now even more reasons to stay out of the market until after the elections. 

Economic recovery to slow 

The question is, can the small private businesses which keep the US ticking over survive? Many are already under extreme amounts of pressure as consumption returns very slowly. The prospect of another month without support could be the final straw for many. We can expect to see the economic recovery in the US slow on the back of Trump’s decision, unemployment could even start to tick higher again. 

Meanwhile, whilst Trump announced that he was closing the wallet until past the elections, Fed Chair Jerome Powell was sat at the other end of the fence saying that there is little risk of the central bank providing too much stimulus to the economy. 

Europe’s reaction less acute 

Heading into the European session, the reaction to Trump’s cancelling of fiscal stimulus talks is less acute. On the one hand the safe haven greenback is pushing higher and oil prices are pushing lower, however, on the other European markets are showing some defiant resilience. The sell off in Europe is lighter. This could be down to the idea of certainty. We know markets don’t like uncertainty and now that a line has been drawn in the sand the markets can move forward, until the data starts showing the negative impact Trump’s decision! 

German industrial production misses 

The European economic calendar is relatively light. German Industrial production missed forecast -0.2% MoM in August vs +1.2% jump in July. The impressive run of data from the Eurozone’s largest economy has hit a speed bump reminding investors that this will be a shaky ride to recovery. 

UK house price data will be in focus later this morning, potentially providing another bump higher for house builders. Looking ahead FOMC minutes will be the key focus in the US session.