The various rolling coronavirus newsfeeds are a very depressing place these days and an unavoidable poignant source for market angst.
England’s Covid-19 deaths jump five-fold in 4 weeks; Arizona new cases back above 1,000; Florida’s average daily Covid-19 cases hits highest in two months; Switzerland risks running out of intensive care beds in 11 days.
Politicians have no choice
While the market had expected this second wave and attempted to factor it into the equation, hoping the improved medical response and lessons learned from March would contain the spread.
The second wave’s barbarity is catching both the market and the medical community by surprise, But the latter is the scarier proposition. Soft lockdowns are always a double-edged sword as they keep the economy open, but empowering people with personal Covid-19 safeguarding has proven challenging in the west.
The virus spread is so rampant that politicians will have few options but to reimpose stricter confinement measures.
French President Emmanuel Macron will announce new tighter mobility restrictions on Wednesday night. With speculation rife, he will impose a new nationwide lockdown on the country as France battles against the second wave of Covid-19 infections that some health chiefs say is now ‘out of control’.
Now, the economic danger will no longer lurk in the dark but will occupy all corners of everyday life. For many industries that were already on the brink of collapse, this could ultimately be their coup de grace.
Investors were ok when the Covid-19 fears lurked in the curfew dark, but with those fears now seeing the light of day, they will also fester in the darker corners of the market’s minds.
The return of “Sudden Stop” is the nightmare that keeps investors awake at night. That fear will play a considerable role in the market’s mindscapes over the next few weeks.
And one would have to believe with numerous sources of uncertainty beyond Covid-19 hobbling the sentiment. It will be difficult for investors to get off the mat from another Covid-19 mortal blow.
Pre-election stimulus package looks all but a pie in the sky
Risk reduction continues, with a pre-election US stimulus package looking all but a pie in the sky.
However, the evolution of European Covid-19 restrictions where significant economies are about to topple back into the Covid-19 sudden stop abyss that sees the market awash in red. While compounding the gloom, it feels like the market is trying to go into next week’s US election light as possible.
Risk assets are flashing red across the board again this morning as the dollar turns bid with growing Eurozone double-dip recessionary fears sending risk aversion shockwaves around global financial centers and leaving little doubt that the December projections will be calling for additional European Central Bank (ECB) or even US Fed policy action, which could cushion some of the falls.
I don’t foresee any significant change or pick-up in activity heading into the election unless there is news on the vaccine front (Pfizer is unlikely to have preliminary vaccine data until after the election), a surprise pre-election stimulus pivot, or major earnings-related dislocations in Mega-cap Tech later this week, considering how widely these names are owned.
Oil remains under pressure
With the increased threat of mobility restrictions similar to those imposed in 1H20 and the consequential level of impact on oil demand still fresh in the market’s mind, oil traders will have little option but to position inverse to the Covid-19 curve as politicians around the world remain pressured to reimpose stricter lockdowns to stop the spread of the virus.
The doomy mood music’s soundboard remains tuned to growing concerns about rising Covid-19 case counts. And reflationary hopes are fading fast as with the French lawmakers taking a frightful economic step back into the Covid-19 full stop abyss and likely to impose nationwide lockdown with the Eurozone’s economic juggernaut Germany likely to follow suit.
Of course, this will bring discussions forward if the OPEC will make deeper cuts.
I suspect that unless there is unequivocal proof that global demand is contracting, it could only occur if draconian lockdown style measures get reintroduced in major oil consumption economies.
So, we might be entering the realm of that possibility.
Equity and Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi