Duncan Donald

Fri, Oct 30

Global stocks reverse as Covid-19 cases across the Atlantic rise and election reality bites

As I write this, it looks like we have potential to close the week with 5 consecutive red days across US stocks. Whilst were not talking days that match the extreme plunges seen in early spring, they are harming the sector, nonetheless. In a week that brought a mass of earnings with the majority of tech giants such as Facebook, Apple, Alphabet and Google reporting on Thursday, with these companies alone holding 40% of the Nasdaq market cap. However looking as you wake on Friday am, you wouldn’t have thought their numbers were very impressive, as has been the broader US firms reporting.


For now, and it seems like, as we have been looking for this for a number of weeks, the market's focus has shifted back towards the virus and the implications on communities and business around the turn of the year. As those countries who took harsher precautions during the first wave and for more protracted periods after it started to abate like China, Australia and New Zealand are enjoying progressively limited numbers of cases and a return to normalization. Across the Atlantic, Europe is creeping towards the eye of the storm, with the UK next in line and latterly the US.  Wednesday brought a record 500,000 new cases globally, with numbers gradually increasing daily across the week. As such, with hospitals across France, Germany and Italy reaching capacity breaking points Euro stocks started to fall, expedited by enforced lockdowns in France and Germany for the next month. The German Dax fell hard, falling around 12% from top to bottom and leading global stocks lower even in the face of strong US numbers. A dovish ECBalso weighed on the Euro as Christine Lagarde and team elected to wait for December to counter the economic weight with further stimulus. 


In the US cases also continue to grow, and with the country being hit last earlier in the year, coupled with the Presidential lead of lackadaisical approach to mask wearing and PPE as they await the presidentially promised vaccine,and fears growth there could be significant  implications of a protracted second wave. With hopes of a pre-election aid plan dead in the water with Trump and Pelosi both now focusing their attention on post-election deals, this is not without significant concern. As we head into next week's election Biden still seems to hold the lead, but as past events have shown, anything can happen. It will take a clear blue sweep by Biden to fuel a strong recovery of the ailing stock markets, anything else will lead to potential contention over the result, and further disruption to economic aid and policy making and ultimately the public at what looks forecast to be a time of need.  What is telling though in the last few days is that even when the stock markets fastest horses (FAANG) perform well the reality is forecasts moving forward were tapered, and with these stocks dominating the markets on the way up, if they start to turn, there will be more pain elsewhere.


In the UK the pressures of Brexit and the virus grow on PM Johnson daily. With the Brexit deadline drawing closer muted points of optimism have been leaked to the press that a deal “could” still happen. Concessions from France on fishing, the main dragging factor of the negotiations have been mentioned which was maintaining the Pound above 1.3000 against the US Dollar. However, as UK virus cases continue to surge, and with Germany and France locking down, the realities of a centralized lockdown in the UK seem inevitable, and with that thought to bring an economic contraction of 15-20% its starting to weigh heavier on the Pound and the stock market. With the key European nations having heightened pandemic issues to deal with domestically fears are that Brexit negotiations will have to slip down in priority in the short term.


The main event of next week will be without question the US election and the main hope is whichever way it goes, we have a definitive outcome by this time next week with no legal contest looming, if that’s not the case we could see a troublesome end to the year. 


The Week Ahead:


Monday - The week starts with a host of Manufacturing PMI data across the globe with Japan, Spain, Italy, France, Germany, UK and finally US ISM numbers. 


Tuesday - With all eyes on the US election this will dominate the day. Additionally we get an interest rate decision from Australia and Employment data from New Zealand. 


Wednesday - As the results of the US Election drift in we also get Australian Retail Sales numbers, as well as Service PMI’s from Spain, Italy, France, Germany and the UK. In the US session we get Canadian Trade Balance and US ISM Services PMI. 


Thursday - From the UK we get Construction PMI before German Factory Orders and Eurozone Retail Sales. At midday we get the UK MPC rate decision and statement from Andrew Bailey. From the US we get weekly Unemployment numbers and in the evening the US interest rate decision from the Federal Reserve. 


Friday - First up is the MPC Statement from Australia before New Zealand Inflation Expectations. In the US session we get Payrolls and Employment data from the US and Canada.