09 July 2020

UK Stimulus Plan Fails to Spur British Stocks

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News shaping
the markets today

     

What’s happening: UK stocks closed lower on Wednesday as investors digested comments from the Chancellor of the Exchequer.

What happened: A rise in covid-19 cases in the US and Australia had already been weighing on investor sentiment. Amid this, the £30 billion plan announced by the UK government's chief financial minister failed to excite the markets.

The UK chancellor also announced a three-point plan to create jobs in the country. Meanwhile, Prime Minister Boris Johnson warned that the UK may walk out of a trade deal with the EU.

Why it matters: Chancellor of the Exchequer Rishi Sunak announced various measures to provide a boost to the UK economy as it emerges from lockdown restrictions. The measures include a job retention bonus for employees furloughed during the crisis and a temporary reduction in VAT on food and accommodation.

While addressing the House of Commons, Sunak also launched the “Eat Out to Help Out” scheme starting August, where people will be eligible for a 50% discount of up to £10 per person for dining out between Monday through Wednesday. A “Kick Start” scheme to generate jobs for young people was also initiated on Wednesday.

These measures failed to lift sentiment, as markets focused on PM Boris Johnson’s warning to Germany’s Chancellor Angela Merkel that the UK will not sign a trade deal if the EU is unwilling to compromise on the terms.

Meanwhile, investors also worried about the rising covid-19 cases in the US, which have exceeded 3 million.

London’s FTSE 100 closed yesterday’s indices trading session down 0.55% at 6,156.16, with Rolls-Royce providing some support to the blue-chip index. The FTSE 250 lost 0.95% to reach 17,185.24 in the session.

FirstGroup’s shares plummeted around 23% after the bus and rail operator swung to a loss for the full year and withdrew its guidance. Shares of Victrex slid nearly 8% after the company reported an 18% decline in its third-quarter revenue.

WPP’s stock declined by 5% after Credit Suisse assigned an “Underperform” rating to the advertising giant.

The sterling traded mixed during the day, closing yesterday’s forex trading session 0.3% higher versus the US dollar but down 0.1% against the euro.

What to watch: With no major economic reports scheduled for release today, investors will focus on the UK’s path to recovery as it emerges from lockdown restriction. The markets will also continue to monitor the global rise in coronavirus cases, with total infections surpassing 12 million.

The Markets Today

     

Gold will be in focus today, after the yellow metal surged for the fourth consecutive session on Wednesday.

Context: Gold futures closed at another record high in nine years on Wednesday, as investors expect various countries to announce more stimulus plans to help their respective economies emerge from the pandemic-driven crisis.

Details: With the precious metal considered as a hedge against economic uncertainty, gold prices have recently been on an upturn amid the continuous surge in coronavirus cases around the world.

US Federal Reserve Vice President Richard Clarida said on Tuesday that the Fed is ready to use all measures to control the damage due to the pandemic. “We have a lot of accommodation in place; there’s more that we can do, there’s more that we will do, if we need to,” Clarida said.

August gold jumped 0.6%, or $10.70, to close at $1,820.60 an ounce, marking its highest settlement since September 14, 2011. The metal’s prices had climbed 0.9% on Tuesday.

After gaining 0.6% on Tuesday, September silver added another 2.5% to settle at $19.161 an ounce in the prior session.

October platinum rose 2.4% to $884 an ounce, while September palladium declining 0.7% to $1,938.30 an ounce on Wednesday.

What to watch: With covid-19 cases exceeding 3 million in the US, traders may continue to add gold to their portfolios unless there is a marked decline in cases. Gold futures traded down 0.1% to $1,820 an ounce in this morning’s Asian session.

Other Markets: US indices trading closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up 0.68%, 0.78% and 1.44%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Minutes of the Eurogroup meeting, Germany’s balance of trade and current account, Japan’s machine tool orders, Canada’s housing starts as well as the US initial jobless claims, wholesale inventories and EIA’s natural gas stocks.

 

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