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October 8, 2020

Markets Lower as Debt Headlines Shift Focus; FTSE Falls through 5330 Support

It is looking like the Congress will be unable to construct a clear majority and a failure to pass this vote will trigger drastic cuts in many essential government programs (potentially limiting growth prospects). This is where the majority of the market’s attention will be focused as we start the week but these events are unlikely to be as jarring as the debt ceiling debacle that was seen over the summer.

In Europe, Spain elected a new government (led by the Popular Party) and this should be mildly encouraging for risk sentiment but the new Prime Minister (Rajoy) continues to make comments about rising funding costs in Spanish debt. The last bond auction in Spain shows that the country is following the same trajectory as Greece and Italy so markets will pay close attention to comments made by the new PM as a way of determining Spain’s next plan of action. The Euro did managed to post gains into the close of last week as on rumors of increased EU loan funds from the IMF but this rally was short-lived and the Euro downtrend has resumed on Monday.

In Japan, we will see the BoJ release the minutes from the October 27th monetary policy meeting, and this will be particularly relevant for currency markets as discussions centered on the bank’s asset purchase increases and the potential negatives of this year’s rally in the Yen. Any mention on additional intervention possibilities will likely see the JPY sell off (mostly against the US Dollar).

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Debt Headlines
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