FTSE 100 rises amid hopes for a US Covid-19 bailout breakthrough and positive inflation data

·3-min read
Speaker of the House Nancy Pelosi: Getty Images
Speaker of the House Nancy Pelosi: Getty Images

The FTSE 100 was set to gain today after Asian markets this morning jumped on hopes of a breakthrough in US talks for a bumper coronavirus bailout deal and a modest increase in UK inflation.

Late last night, hopes emerged that House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin might be able to reach agreement on some form of help for Covid-affected businesses and households.

Pelosi had clearly extended her Tuesday deadline for talks over the deal as Mnuchin apparently upped the Republicans' offer to $1.9 trillion, bringing it closer to the Democrats' demand of around $2.2 trillion.

The two sides have been battling over a compromise for more than two months, putting markets on edge as everyone seems to agree the world's biggest economy needs some major fiscal stimulus as the nation's excess deaths hits nearly 300,000.

Despite many false dawns in the negotiations, Asian markets opted to believe in the breakthrough, with decent gains this morning. That is likely to push through to European stocks, with the FTSE 100 expected to rise 17 points to 5906 according to CMC Markets data. The Dax in Germany was being called up 58 at 12795 and France's CAC 40 up 18 at 4947.

UK inflation data was set to dominate the early headlines, with investors hoping for a slight rise in the number from 0.2% to 0.6%. Prices have been under huge pressure during the Covid economic crisis as demand for goods and services plummets during lockdown. Despite the Bank of England slashing interest rates and buying bonds in the markets, they have struggled to put a floor under inflation.

Falling prices may seem like a positive thing for consumers, but in fact, it is bad for the economy as it encourages people to put off purchases until later, further dampening demand for goods.

Also out today are public finances data which will be ghastly as ever as the Government, like the rest of the world's governments, spends heavily to deal with the crisis.Expect public sector borrowing to rise by another £32.4 billion - slightly up on the £35.2 billion in August.

CMC points out that the total borrowing since Covid began in March will total some £217 billion.

Little wonder Chancellor Rishi Sunak is today reported to have advised Boris Johnson to ditch his plans for an autumn comprehensive spending review to set out future spending plans across Whitehall. Johnson wants to press on with the three year spending plan to set out a post-Covid battleplan, with extra spending for defence. However, Sunak has counselled that any plan would be meaningless at this stage of the Covid chaos.

Johnson remains mired in squabbles over money, policy and Brexit with cities like Manchester within England, the governments of Scotland and Wales, and the European Union. With so much up in the air, talk of three year plans seems hopeful, at best.

Meanwhile, the government has told London Mayor Sadiq Khan that central government will take over Transport for London if he does not accept higher council taxes, a bigger take from congestion charges and higher Tube and bus fares. A perfect recipe for disaster as the capital struggles to get people back into town for work and pleasure post-Covid.

Dealing with all those variables makes investors and companies deeply cautious. Today it emerged that UK companies looking to conserve cash during these rainy days have literally halved the amount they have paid shareholders in dividends during the third quarter. Two thirds of them cut or cancelled dividends, according to the Link Group.

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