European markets are gradually gaining ground, with vaccine hopes being counteracted by US stimulus and lockdown fears. Meanwhile, the October UK retail sales figure helps alleviate some of the anxiety ahead of a crucial period for retailers.  

  • European markets grind higher.

  • UK retail sales impress, yet Rishi Sunak highlights need to start tightening the purse strings.

  • US treasury reject Fed calls for an extension to emergency lending programmes.

Tentative European gains this morning appear to maintain the ongoing consolidation phase, as markets tread water in the wake of the vaccine boost seen over the past two Mondays. From a UK perspective, plenty rides on the outcome of the AstraZeneca vaccine trials given the oversized nature of the pre-order compared with the likes of Pfizer and Moderna. Rishi Sunak has taken the first steps in attempting to address the budget imbalances by announcing a freeze on public sector pay. However, with the chancellor having over £200 billion in financial support over the course of the year, there are fears that today’s public sector pay freeze is just the tip of the iceberg. UK retail sales provided a timely boost ahead of the impending Black Friday sales, with October sales up 5.8% on those seen a year earlier. Tuesdays disappointing US retail sales figure has put a lot of pressure on high street names ahead of a particularly difficult festive period on the high street. Unfortunately, with non-store retailing leading todays UK retail sales figure, it is clear that the coronavirus will drive a deeper wedge between the high street and online.  

Stimulus remains a significant theme for markets, with the continued failings at Congress now accompanied by a move from the US Treasury to withdraw the CARES act despite Fed extension requests. With the Fed seeking a 90-day extension to the four emergency lending programmes currently in place, Steven Mnuchin’s rejection highlights an end to the kind of support needed to stave off a deeper economic collapse. Quite what kind of impact this will have upon the economy remains to be seen, but it certainly does add an element of uncertainty that is unlikely to benefit equity valuations.  

Ahead of the open we expect the Dow Jones to open 59 points lower, at 29,424.

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