European Open – Easing into earning season

The Stimulus Keeps Coming

European stock markets are off to a decent start on Thursday, following a couple of days of declines as indices continue to linger close to recent highs.

There’s no doubt that the bounceback has stalled but, encouragingly, we’re not yet in reverse despite the growing concerns about Covid second waves. Naturally, the sheer amount of monetary and fiscal stimulus and the promise of more if needed, is giving investors reason to stay strong, despite the economic outlook being far from as promising as what the markets would suggest.

Rishi Sunak added to the stimulus efforts on Wednesday, offering new incentives to support the hospitality and housing sectors, as well as employment more generally as businesses ponder redundancies and the furlough scheme winds down. The measures were bold and added to the UK’s Covid bill but thankfully comes at a time when borrowing costs are very low and the central bank is a keen buyer.

While there’s no shortage of news right now, we appear to be in a holding period ahead of earnings season with much of the economic news at the moment being broadly priced in. Whether earnings season proves to be much of a catalyst is another thing, with the doom and gloom of Q2 priced in at this stage, it may all hang on the optimism/pessimism heading into the end of the year.

Oil holds onto gains for now

Oil prices are a little flat in early Thursday trade, lingering around the highs that they’ve achieved since the historic collapse earlier this year. Traders may be buoyed by its ability to hold onto recent gains but there continues to be a lack of appetite above here. Very little has changed on the outlook, with it still highly dependent on the reopening success and producers willingness to extend output curbs. Should we see the latter, we could see a move towards $50 but I’m far from confident of that happening.

Gold breezes through $1,800

Gold finally broke above $1,800 on Wednesday after weeks of very gradual gains that cast significant doubt on whether it would have the momentum to overcome such a significant historical resistance level. As it turns out, while the buildup was painful at times, with the yellow metal running out of steam just as the rally was getting going, the breakout was surprisingly straightfoward, with momentum kicking in at just the right time.

The question now is whether the momentum can be maintained or whether it will fade, taking all the stops just above $1,800 with it. The early signs are promising, with the price hitting $1,817 and now holding around $1,810. Given how significant this level was back in 2011 and 2012, it would be surprising to see gold breeze through it with such ease now.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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