US stocks resume downward slide as sterling falls further

Wall Street stocks resumed their downward slide on Thursday, September 10, while the pound dropped further amid a fight between Britain and the European Union (EU) on Brexit legislation.

After an early advance that built on the winning session on Wednesday, September 9, United States stocks stumbled, finishing solidly lower.

The pullback came as a trimmed-down US relief package failed to pass the Republican-led Senate. The $500-billion package marked a dramatic reduction from the $3-trillion bill that the Democratic-led House of Representatives passed in May but which was never taken up by the Senate.

“No one was expecting that bill to get very far,” but the setback “reflected the burgeoning pessimism surrounding another relief bill.”

Among major indices, the tech-rich Nasdaq was again the biggest loser, finishing down 2% behind declines in Apple, Amazon, and other large tech companies.

“Investors are wondering whether the technology sector can continue to deliver for the overall market,” said TD Ameritrade’s JJ Kinahan.

Large tech companies have been major beneficiaries during the coronavirus pandemic, propelled by rising demand for digital services, streaming, and e-commerce.

But increasingly there are “question marks in peoples’ minds about ‘the work from home’ trade,” Kinahan said.

Marking time

European equities also pulled back earlier in the day as European Central Bank (ECB) head Christine Lagarde forecast the eurozone’s coronavirus downturn would be less severe than feared.

As major stock markets marked time, Lagarde acknowledged a recent spike in coronavirus cases was causing “headwinds” for the recovery whose pace remained uncertain, but added data pointed to a “strong rebound” in the 3rd quarter.

Grilled by reporters about the euro’s rise against the dollar, the ECB chief acknowledged concerns that the currency’s upward surge could brake price growth and keep the central bank’s inflation target further out of reach.

The issue was “extensively discussed,” Lagarde said, adding the ECB was not targeting a euro level.

But she added, “We are monitoring carefully the impact of our currency on our medium-term inflation level.”

Fresh Brexit fight

The euro gained against both the dollar and the pound, which suffered as Britain’s government defied threats from the EU of legal action over Brexit legislation.

Boris Johnson’s government provoked EU ire after it introduced legislation that intentionally breaches its obligations regarding Northern Ireland in the withdrawal treaty.

The move has fanned fears of no trade agreement being reached, dealing a double whammy to a British economy already ravaged by virus lockdowns.

The European Commission warned that Britain “has seriously damaged trust between the EU and the UK,” and scorned Downing Street’s contention that the bill will preserve the peace in Northern Ireland.

“In fact,” the statement said, Brussels “is of the view that it does the opposite.”