he FTSE 100 was set to fall back below 6300 today as enthusiasm over the Pfizer vaccine waned amid soaring Covid-19 levels and upheaval in Downing Street at a crucial time for Brexit negotiations.
While there will be relief in some quarters that the Brexit hardliners’ stranglehold over the Prime Minister may be eased by the resignations of Vote Leave architects Dominic Cummings and Lee Cain yesterday, reports in the Financial Times that Brexit negotiator David Frost had also considered resigning could trigger new concerns over the likelihood of a trade deal.
Frost reportedly denied it had anything to do with the talks’ progress, and Cummings is set to remain in place until the end of the year, but the uncertainty was likely to bother investors.
On the other hand, some reports suggested Prime Minister Boris Johnson was pushing for the UK to compromise in the negotiations to get a deal across the line, which could be supportive to markets.
US stocks fell heavily yesterday as a surge in Covid-19 cases dulled the exuberance from the vaccine news. The FTSE 100 ended its eight day run of gains, slipping 0.7%.
That bearishness was set to continue into UK trading today with traders expecting another 1% off the London index. Spread betting on IG Index pointed to a 64.8 point fall to 6282.1.
Even the news this morning that Biden’s victory had been cemented by strong indications that he had won in Arizona did nothing to lift the gloom in FTSE futures.
Grim news on Covid deaths, hospitalisations and infections came rolling in throughout the session yesterday, culminating in news that New York City was mulling the closure of schools and Chicago last night demanding citizens cancel their Thanksgiving plans and stay at home.
The switch out of tech and Treasuries that marked trading strategies after the Pfizer news was only partially reversed, however. Apple, Microsoft and Amazon made small losses yesterday.
Investors were waking up to the fact that the vaccine will not come soon enough to dent the second wave currently storming through Europe and the US.
Oil and banking stocks were likely to fall when UK markets open, echoing tumbles on Wall Street after London closed yesterday.
A rally in bond prices pushed yields down, damaging banks’ optimism over future profits, and the covid infection figures dented likely demand for oil worldwide as lockdowns looked set to stay in place for longer.
The mood in the UK was worsened as the week drew to a close by reports Rishi Sunak is mulling an increase in capital gains tax to fund the pandemic costs.
The Treasury based Office of Tax Simplification is, the Times reported, mulling equalising CGT with income tax, a move that is often considered by cash-strapped chancellors but always rejected.
The fear is that it puts entrepreneurs off from investing in taking risks, as the rewards get so highly taxed if bets pay off.
Business owners and second home owners are always most badly hit.
Overall, a bearish day was in prospect, with yesterday’s strong GDP numbers for the third quarter replaced by concerns about employment levels.
Today sees EU GDP data released along with employment numbers in the region. Second quarter employment fell 2.9% and most economists expect what CMC Markets’ chief markets analyst Michael Hewson called a “feeble” 0.7% rebound in quarter three.
“Given that unemployment is structurally higher in Europe anyway, this will raise grave concerns about the outlook for unemployment into year end, as well as into the beginning of next year, in the absence of significant fiscal stimulus from EU leaders,” he said.
The Dax index in Germany was set to open 50 points lower at 13003 and the CAC40 in France 27 down at 5335.