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Fresh co-ordinated stimulus in the UK as country enters a new lockdown
- The Bank of England announced expansion of their Asset Purchase Facility (APF) by £150bn on Thursday, taking the total stock of gilts held to £875bn. This round of purchases was more than the market was expecting (£100bn), but gives the MPC room to pick up the pace of weekly asset purchases, “should market functioning worsen materially again” before the end of next year. Bank Rate was left unchanged at 0.1% and the stock of corporate bonds held was also unchanged at £20bn. GDP estimates were revised down on the back of new lockdown restrictions, it now forecast -2% quarterly GDP decline in Q4 with a large margin of error given “unusually uncertain” conditions (annual forecast revised down from -9.5% to -11.0%).
- Chancellor Rishi Sunak followed the MPC meeting with an announcement of an extension to the furlough scheme across the UK to the end of March 2021. The most recent package will also provide additional support to those self-employed under the SEISS program (grant of 80% of average trading profits) and provides an additional £2bn in guaranteed funding to devolved nations.
US labour market healing continues
- The US added a better-than-expected +638k to nonfarm payrolls in October as rehiring of workers temporarily laid off earlier in the year continued apace. The unemployment rate fell -1.0pp to 6.9% (expectation 7.6%) and underemployment -0.7pp to 12.1%.
Markets surge as event risk of US election passes
- The passage of the US general election was sufficient to provoke a sharp rally in equities despite the unclear outcome. The rally was led by tech, helped along by the rally in rates, and reduced probability of greater regulation of the industry given that the US Senate is likely to remain in Republican hands and hence Congress to remain gridlocked.
- The US treasury curve bull flattened (long maturities outperformed short maturities) as a Blue Wave failed to materialise, reducing the prospects for a major fiscal stimulus package, although this trend had started to reverse by the end of the week. Gilts followed a similar pattern to treasuries although the reversal into the weekend was even more pronounced in the wake of the sizeable fiscal stimulus announced by the UK Chancellor.
- The US dollar sold off across the board in a typical “risk-on” movement and precious metals surged. Crude oil rebounded following the acute sell-off of the previous two weeks but by the weekend Brent had slipped below $40/bbl again, weighed down upon by the deteriorating outlook for global demand given escalating Covid-19 lockdown measures in many advanced economies.
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