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GLOBAL MARKETS-Wall Street poised to recover losses as shock of stimulus talks cancellation fades

Wed, 7th Oct 2020 13:02

* Graphic: 2020 asset performance

* Graphic: World FX rates in 2020

* Reuters Live Markets blog:
(Updates prices, adds comments)

By Elizabeth Howcroft

LONDON, Oct 7 (Reuters) - European shares fell on Wednesday
but Wall Street looked set to recover some of its losses from
the previous session, with confusion over U.S. stimulus plans
and uncertainty about the Nov. 3 presidential election
dominating markets.

Trump broke off talks with Democrats in a tweet on Tuesday,
saying that negotiations will stop until after the election,
when he promised a major stimulus bill if he wins.

The news quickly rattled Wall Street but Asian investors
became less concerned overnight on the grounds that whoever wins
the election will still introduce a fiscal stimulus bill.

European indexes fell, with the STOXX 600 down 0.2% at 1117
GMT, Germany's DAX down 0.4% and London's FTSE 100
broadly flat on the day.

The MSCI world equity index, which tracks
shares in 49 countries and had climbed to a three-week high
before the stimulus talks were cancelled, was down 0.1%.

But U.S. stock futures pointed to Wall Street recovering
some losses, with S&P 500 futures up 0.6% and Nasdaq
futures up 0.5%, helped by later tweets by Trump where
he called for more fiscal support.

"Even if a pre-election deal cannot be reached, Biden's
widening lead in the election polls is making it likelier that
more substantial stimulus can eventually be agreed on," UBS
strategists wrote in a note to clients.

A poll on Monday showed Democrat Joe Biden with his widest
lead in a month, as a majority of Americans said Trump could
have avoided coronavirus.

Trump's tweets came shortly after U.S. Federal Reserve Chair
Jerome Powell reiterated warnings about the economic recovery,
saying that the U.S. economy could slip into a downward spiral
if the coronavirus is not controlled and growth sustained.

German industrial output fell unexpectedly in August,
indicating that the recovery from the coronavirus recession in
Europe's largest economy could be less powerful than hoped.

"Ultimately, we’re still in this situation that’s been
really running for some time. UK and European markets have gone
nowhere since May/June and the U.S. isn’t making an enormous
amount of progress now," said Russ Mould, investment director at
AJ Bell.

"You’ve got the irresistible force on one side of fiscal and
monetary stimulus and on the other side you’ve got the pandemic,
the recession and uncertainty over what the shape of the
recovery’s going to be," he added.

The dollar - which initially rose when the talks in
Washington were cancelled - fell on Wednesday, down 0.1% against
a basket of currencies at 93.732 at 1122 GMT.

Minutes from the Fed's September meeting will be published
at 1800 GMT.

The pound was down 0.1% at $1.2859, buffeted by headlines
about Brexit negotiations. Ireland's foreign minister said he
still believed a trade deal between Britain and the European
Union can be reached but that fishing rights remain a big

U.S. Treasury yields rose and the yield curve, which had
flattened after Trump's tweet cancelling stimulus talks,
steepened again.

The spread between two and ten-year U.S. treasuries edged
back towards recent four-month peaks.

"I would put the recent yield curve steepening down to the
perceived increased likelihood of a Democratic ‘clean sweep’ and
this resulting in a more significant fiscal stimulus bill being
approved," said Mark Holman, CEO and portfolio manager at
TwentyFour Asset Management.

"The upshot of this is an injection into the economy, which
of course is good news for the markets and positive for risk
assets in general," he added.

Oil prices extended their decline. With West Texas
Intermediate crude oil futures down 3% cents at $39.47 a barrel
by 1132 GMT.

Gold was up 0.4% at 1133 GMT, at $1,884.58 per ounce.

The benchmark 10-year Bund yield was up around 2 basis
points at -0.489%.

(Reporting by Elizabeth Howcroft; Editing by Toby Chopra)

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