Recovery fades, as eyes turn to the presidential debate

Stimulus hopes and improved consumer confidence have done little to lift market sentiment, with the impending presidential debate driving a hesitant approach for traders. Meanwhile, the UK are attempting to break the Brexit deadlock in a critical week of negotiations. 

• FTSE 250 underperforms, as recent recovery fades 
• Presidential debate to kick-start pre-election coverage 
• UK seeks to break Brexit deadlock  

Traders have approached today with a somewhat hesitant stance, with the upcoming presidential debate driving risk-off sentiment. Coming during a period of uncertainty, the recovery seen either side of the weekend are faltering once more after a negative open for US markets. From a European perspective, Germany remains the outperformer. Meanwhile, the continued fears of a second -wave in the UK brings yet another day of underperformance for the domestically-focused FTSE 250. While yesterday’s buy-the-dip mentality brought about the best day for European stocks in three months, the losses of today highlight the volatility and uncertainty that will likely dominate as we move forward. 

Todays US presidential debate looks set to focus the markets on a massive risk event that is now just five-weeks away. While Trump is now a relative known quantity, there are significant questions around Biden’s ability to perform in such an environment. Neither candidates are spring chickens, but today’s debate will provide a basis for Biden to prove his competency given Trump’s recent claims to the contrary. From a market perspective, there have been plenty of positives to lift sentiment, with a spike in consumer confidence coming as Larry Kudlow’s comments highlight the potential for a partial coronavirus deal centred around these elements that have bipartisan support. With the fears that a second wave of lockdowns could be possible, markets will certainly hope Trump can drive a second stimulus package across the line ahead of the elections. 

The pound has erased some of its early losses, with hopes of a Brexit deal improving after the UK sent a host of new trade deal drafts in a bid to break the deadlock. With the final scheduled round of talks commencing today, the hope is that both sides will find enough compromise to enable a final ‘tunnel’ phase to take us into the EU summit in mid-October. While Johnson managed to bring about a last-minute deal for the transitional period, there are doubts over whether a similar approach could work when there is a need for a comprehensive trade deal. Nevertheless, with the UK seemingly extending an olive branch at such a critical time, the pound could be in for plenty of volatility as we learn just how far away a deal is.