FCA extends mortgage holiday while UK reports largest budget deficit – US futures and European markets slide

The ongoing tensions between the US-China are back on the forefront, which has dampened the sentiment among investors today. Trump approved the arms sales to Taiwan, and the US Senate passed legislation that can delist the Chinese companies from US exchanges. Investors have pulled money out of Chinese ETF at a record pace as they know that things are about to get ugly. This pushed the US equity markets lower, and as a result, the US indices closed in negative territory yesterday. The S&P500 index lost 0.78%, the Dow Jones index declined 0.41%, and the Nasdaq index felt the most pain, and it plunged by -1.13%. This is despite the fact that the overall economic data released yesterday confirmed that the worst might be behind us as the economic data may have hit bottom.

Another factor that is haunting the US futures is the amount of continuous US jobless claims data. It was released yesterday. Yes, the initial jobless numbers matter--as always, but it is the continuous jobless claim data that the Fed is likely to watch the most. This continuous jobless data is eye-watering, and unfortunately, it isn’t expected to drop substantially anytime soon. The longer the Americans remain out of a job, the more significant the structural damage will be for the US economy. This means that the Federal Reserve needs to keep its loose monetary in place for an extended period of time. If things do not start to improve by the third quarter, there may be no surprise if the Fed drops the interest further.   

But, for now, the dollar index is trading steady, and it is back in demand among investors. The dollar is trading higher among most major currencies such as the Euro and Sterling.  

FCA Extends Mortgage Holidays 

Back in the UK, another major announcement has been made by the FCA. In order to ease the burdens on banks and save them from mammoth bad loans, the FCA has allowed the banks to extend the period of mortgage holiday by another three months. It was widely expected that this extension will be made because the employment situation is still immensely feeble in the UK. Bringing the mortgage repayments back would have increased loan defaults. 

Consumers are still in no position to pay off their debt repayments, and a longer holiday period buys them more time to find a job so that they can meet their debt repayments. It also keeps the pressure away from lender banks that are likely to report higher defaults if repayments aren’t made. 

Unprecedented Fiscal Policy Unprecedented Budget 

The UK’s unprecedented fiscal policy support made the government to report its most significant budget deficit on the record. The monthly deficit is the largest since the record began in 1993. Even during the financial crisis, the monthly borrowing wasn't close to this level. Furlough payments have pushed the deficit more out of its proportion. The central government's tax revenue also plunged by 27%. Of course, the primary task for the government is to save the economy from a colossal collapse.

Oil Prices Retrace From Its Highs 

As for the commodity space, oil prices are finally feeling the selling pressure as investors have woken up to a reality that the global oil demand isn’t going to return to its pre-crisis level overnight. There is still a lot of work that needs to be done in order for demand to recover, and as long as the global economy continues to lose more jobs, consumers are likely to cut back from their spending.

As we discussed yesterday, oil prices went up too early and too fast. Today, Crude and Brent oil prices have retraced from their highs. It is likely for the oil prices to continue to consolidate for some time before traders finally make up their minds about a new oil price direction.