Wednesday 7 October 2020 2:42 pm

FTSE 100 flat after Donald Trump ends US stimulus talks

The FTSE 100 flatlined after US President Donald Trump abruptly ended talks between Republicans and Democrats over the next round of fiscal stimulus.

London’s blue-chip index was just 0.06 per cent higher at 5,953.6 points as it approached midday. The FTSE 250 was up 0.17 per cent.

Read more: US stocks fall after President Trump calls off stimulus talks

European stock markets also slipped back after opening in the green, following sharp falls on Wall Street yesterday. Germany’s Dax was down 0.46 per cent and the continent-wide Stoxx 600 fell 0.21 per cent.

Republicans and Democrats have been at loggerheads for months over the potential stimulus bill. Democrats had hoped for a package worth around $2.2 trillion (£1.7 trillion). Yet Republicans argued the economy needed far less.

Trump ran out of patience with the process yesterday. “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” he tweeted.

Wall Street rises as shock over scrapped talks fades 

US stocks climbed sharply after the open on Wednesday, with all major indices adding more than one per cent in the first minutes of trading. 

The S&P 500 started the session 1.21 per cent, while the Dow climbed 1.19 per cent. The Nasdaq added more, rising 1.29 per cent.  

Trump’s move to end talks appeared to be a change of tack. Just days earlier he had urged both sides to agree on a package. 

Ending stimulus discussions is a risky strategy for Trump ahead of the 3 November presidential election. Economists have warned that US households and businesses, particularly in sectors like aviation and hospitality, need extra support fast.

“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 analysts wrote in a note to clients.

Read more: Fed’s Jay Powell: Too much stimulus is better than too little

Yesterday, US Federal Reserve chairman Jay Powell made some of his most pointed remarks yet about the need for new stimulus. 

“The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

Confusion weighs on FTSE 100

However, hopes of a deal before the election are not completely dead. Trump sowed confusion with a series of tweets that showed he was keen on some economic support.

He tweeted: “If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now. Are you listening Nancy?” He was referring to Nancy Pelosi, Democrat speaker of the House.

He also tweeted: “The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support, & 135 Billion Dollars for Paycheck Protection Program for Small Business. Both of these will be fully paid for with unused funds from the Cares Act. Have this money. I will sign now!”

Russ Mould, investment director at AJ Bell, said there were still hopes that the plans could be revived. He said this was “probably helping investors keep the news in perspective for now” and limiting bigger falls on the FTSE 100 and other stock markets.

He also pointed to data which showed UK house prices rose sharply once again in September. Housebuilder Taylor Wimpey was up 2.6 per cent, while Barratt Developments was one per cent higher. 

Tesco was one of the biggest FTSE 100 risers, with shares up 1.7 per cent. Its first-half figures showed that earnings fell. But the supermarket said it expects profit to be similar to last year.

Read more: ECB’s Christine Lagarde: Coronavirus cases putting recovery at risk

Internationally focused stocks fell as investors fretted about a lack of stimulus from the US, the world’s biggest economy. 

Jet-engine maker Rolls Royce dropped 1.4 per cent. Shell B shares fell 1.5 per cent and Burberry was one per cent lower.