European stocks took a beating but bounced well in early trade on Friday; dead cat bounce?

European stocks took a beating yesterday but bounced well in early trade on Friday. Dead cat bounce? Not so sure – we're still just trotting over well-worn turf and there is not any real momentum on either the upside or downside. The FTSE 100 tested close to the September lows but these held and the index finished at clear of the 5,800 level at 5,832. This area around 5,780 has been tested 6 times in the last month and is holding. This morning gains took it towards 5900. US markets fell slightly, but the S&P 500 was down just 0.15% to 3,483 after 3,440 held at the low. Asian markets edged higher. US futures were flat. Gold is steady above $1,900 but approaching channel resistance around $1,917/20. WTI (Nov) is holding $40 after EIA showed 3.8m barrel draw on US stockpiles but bulls failed to sustain a move north of $41.

Markets remain pretty wedded to their September ranges for now as investors wade through a swamp of worry – Brexit, pandemic, US elections etc. But as stated yesterday, the broader backdrop of strong fiscal and monetary support remains supportive. Choppiness around the US election can be expected for the US market in particular, however there are additional risks seen around Europe given the twin threats affecting the bloc's export economy consisting of rising coronavirus cases going into the winter leading to fresh lockdowns, and the prospect of a no-deal Brexit. Christine Lagarde said the ECB would do more if necessary, to support the eurozone economy as new restrictions suppress activity. Euro is unmoved – EURUSD holding 1.17 for the time being as it chops through the middle of the Jul-Sep range.

Pubs are finding it tougher as London and other regions head towards Tier 2 status – sentiment in hospitality is being crushed by the restrictions and many will become unviable. The government doesn't seem bothered. There is a sense of inevitability about further lockdowns as more cities and regions go up the tier ladder. JD Wetherspoon preliminary results for the year to July 26th showed a near 30% decline in like-for-like sales as it slipped to its first annual loss since 1984. Of course, it's not just lockdowns shutting pubs, it's depressed consumer sentiment. If you do go out these days, you get a less-than-optimum experience, so why bother? Chairman Tim Martin complained of ‘a marked slowdown' since the introduction of forced table service, the requirement to wear a mask when not seated and the 10pm curfew. Shares fell 12%. With no signs of when restrictions in the capital and elsewhere will be lifted pubs are becoming uninvestable in the current climate.

Britain's Oct 15th Brexit deal deadline came and went with little fanfare or outrage. The two sides are still talking but there is some concern the EU has not committed to ‘intensified' talks. Sterling is unmoved as it trades the ranges. Headline risk remains but I'd anticipate talks going on for several more weeks – Boris Johnson is likely to step up the no-deal rhetoric to force the EU's hand here and that may drag GBPUSD back to the low end of the range at 1.27.

The World Health Organisation (WHO) said Gilead's drug Remdesivir had little to no effect on Covid-19 mortality. This follows a couple of setbacks for vaccine trials lately and highlights the fact we cannot rely on things ‘getting back to normal' any time soon.

US stimulus hopes faded...how many times has this been said? Anyway, the Republicans' $1.8tn offer has not won support from House Democrats. A deal will come but not yet it seems. Markets will continue to be on the hook for the headlines.

US initial jobless claims were soft, coming in at 898k vs 830k expected, though continuing claims fell sharply and are now down to their lowest level since March after declining by 2.7m in the last three weeks. Lots of important US data follows today with the retail sales print, industrial production and the University of Michigan consumer sentiment report.

Election Watch

Both Presidential candidates held separate televised town hall events with voters, replacing the scheduled 2nd presidential debate. Trump committed to a peaceful transition (not that he has much say in this anyway, but it's been a useful trope for the Democrats to suggest he would cling on). Biden +9.4pts nationally and +4.9pts in the battleground states. Trump trailed by 5.4pts at this stage in 2016 in these swing states. Betting odds still at 65% in Biden's favour.