Despite some remarkable news on the healthcare and vaccine front this week, which saw investors cheer it to the rafters, global stock markets stalled on Thursday as investors could not shake the sentiment crushing aspects of the continually soaring COVID-19 cases and the unpleasantries of new economic restrictions.

US equities traded mixed on Thursday as the week’s vaccine rally faded and record virus cases fueled new concerns about mobility restriction over the upcoming festive season, provoking a considerable amount of market soul searching into the weekend.

It feels a bit deflated for US equities today, with single-stock volumes dropping sharply as the day went on. As risk appetite starts to show cracks, the anticipated risk parity and pensions selling may put pressure on the market at a time when short interest is already at a seven-year low, and the market is under-hedged.

Vaccine rollercoaster ride leaves everyone exhausted

The roller-coaster of the last two weeks seems to have finally come to a halt. Everybody is exhausted. And the market feels vulnerable as rates start to pull back a bit. Indeed it’s “hard to shake the disease in situations like this”

Reversing the vaccine risk rally earlier this week, more immediate concerns about rising infection cases sounds dominated sentiment overnight. The US has now registered nine consecutive days of new infections above 100,000, and new mobility restrictions have been imposed in various states.

The next catalyst to propel the vaccine narrative has to be efficacy results from AstraZeneca (its vaccine does not have the same infrastructure challenges as Pfizer’s). However, these are not expected until late December/early January.

Therefore, marketers are likely to find themselves in a bit of range, pending the reopen trade in 2021.

Oil markets

It is hard to bid in the market this morning as the virus’ 3rd wave spread is ravaging the US and forcing tighter lockdown restriction.

The oil market had a troubling day as the slide started on the IEA comment that demand will not recover until well into 2021. This was compounded by the huge divergence between the API stats earlier in the week.

The Department of Energy (DOE) oil stocks total was an absolute shocker that saw oil sell off quickly. The DOE saw a large build rather than a huge draw as estimated earlier in the week by the API. This has all put to bed the vaccine-inspired short squeeze rally.

Unequivocally the market needed a comparable draw to keep the vaccine trade momentum going. However, now it feels like we are back to square one as oil prices in the next few months will still be driven by the demand outlook and the perception that OPEC+ has a handle on supply as the global economy gradually returns some semblance of normalcy.

OPEC officials have suggested that current production cuts may be extended 3-6 months when the group meets at the end of November in response to recent macro developments with the current views centering around a 3-month extension.

However, given the extent of this 2nd and 3rd wave COVID-19 surge in the US and Europe means it is prudent for a more gradual easing of agreed cuts to at least be considered.

Whether we ultimately see deeper cuts proposed or implemented will depend on how the outlook changes between now and the meeting. But with the market still struggling to gain traction, fearing a holiday lockdown, and an absolute key, OPEC must continue to demonstrate a level of responsiveness and flexibility.

Forex markets

Interest rate differentials – so often a principal driver for FX through both the signalling and carry structures – already show less vigour for currencies. Suggesting the most apparent nominee that will drive FX performance in this “new normal regime” is the comparative growth.

The bullish dials are pointing to AUD, NZD, NOK, and SEK as the first pass candidates, and the laggards are likely to be the GBP, EUR, and JPY. With the dollar smack dab in the middle of all divergencies, I think it’s pretty clear idiosyncratic drivers will be the key in 2021 currency outlooks.

The Malaysian ringgit is holding near the 4.13 after struggling this week under a rancorous political cloud of despair, which saw day after day of the budget disputes making front-page news in Kuala Lumpur.

Today, traders hope for a more sobering decline in 3 Q GDP (-7 %) vs. Q2 17.1 % plunge. But of immediate concerns, the ringgit is getting little help on the energy front as oil prices once again are succumbing to, therefore, gnarly global COVID-19 outbreak.

Japanese Yen

Risk-off sentiment and falling US Treasury yields capped any upwards momentum in USDJPY this morning as the COVID-19 situation in the US remains extremely severe. And as the US Fed continues to do their dovish best at suggesting the status quo of easy money policy as far as the eye can see.

Australian dollar consolidates

The Aussie is consolidating at the low end of the recent range where the currency felt the added weight of AUDNZD selling overnight, which saw the cross touch is the lowest level since April.

The ravaging spread of the virus in the US which may force tighter lockdown restriction is hurting global risk sentiment. But given that the Australian economy is likely to be an outperformer on the global comparative scale, dip buying should soon start to appear on the street with their fill of chasing AUDNZD lower.

Gold remains under pressure

Gold remains an asset looking for a purpose. US Treasury yields dropped overnight. The dollar was relatively flat again. The EURUSD and Gold traded flat, so by all accounts, gold is little more than a mirror reflection of the EURUSD these days while trying to find a new narrative to ride between now and a possible inflationary wave later in 2021.

International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi