US equities were weaker again overnight as rising Covid-19 infection rates and lockdown concerns are the market’s primary focus.
And in what could be a foreshadowing of more wide-sweeping public health measures needed to combat the spread of Covid-19, in the US, New York City (NYC) Schools announced a halt to in-person instruction starting Thursday.
And this looks very likely to impact the local labour market negatively. And predictably, the US stock market has reacted extremely negatively, as traders cut and trim while hedging against this necessary health care move that could be the trigger that sends both the market and the economy back on the Covid-19 doom loop.
It is not just the soft lockdown that hurts sentiment, but it’s the virus’s pernicious influence over how we live our lives and integrate with the society that becomes the great unknowns for the market.
Investors try to mitigate year-end risk exposure
Sure, we shop more online, but the virus’s downstream impact on the big city job market, especially huge US urban centres, is likely irreparable, and for that, the vaccine cannot provide a cure.
Investors were already getting keen to mitigate year-end risk to protect gains early in the week, knowing that 2020/21 is still likely to be a tough period for northern hemisphere economies, as evidenced by soaring US coronavirus case counts and new pre-NYC virus containment measures in Washington, California, and Pennsylvania.
Year-end risk reduction was stamped all over the market yesterday. Despite more excellent vaccine news, there was only a speedy pop-up and down in risk and was barely noticeable in fixed income and equities.
Investors are becoming more fearful of the economic damage already done and what will be exerted while waiting for the vaccine rollout.
One can only imagine how far this sell-off could have run without multiple vaccines in the pipeline. And while the vaccine does offer bright green lights at the end of the tunnel, the tunnel just got more cavernous and lengthier.
Regardless of what positive input there is, be it a vaccine or a flattening of the curve, it seems like we always have a “short-clock ” to work with, given the omnipresent COVID-19 nasties.
Oil shrugs off mixed data
For most of the session, oil prices had shrugged off the mixed API and DOE figures to focus on positive Chinese import data instead, that was until the Covid-19 doom loop struck again when NYC halted in-person instruction.
And with virtually every US state’s Covid-19 curve heading in the wrong direction, with dozen or so densely populated major urban centres and states extremely peaky, traders are forced to hedge the downside risk as it could be a matter of time before political pressure gives in to shutting down the whole holiday season.
As cases surge across the US, more public schools and universities are currently plotting a defensive course of action. Road-mapping what their next defensive healthcare measures should look like, especially following a holiday season where most medial experts fear will further fuel the virus’s rampant spread.
Equity and Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi