When it rains, it pours, particularly if you are following today’s COVID-19 headlines. Global equities are in freefall following a steady flow of disheartening coronavirus news that cemented the belief the global economic recovery will pause as the northern hemisphere grapples with lockdowns and restrictive measures.
German Chancellor Merkel announced a one-month partial shutdown that will takeaway all the reopening momentum that has taken place over the past few months. The partial lockdown will close bars, restaurants, movie theaters, and sports facilities starting on November 2nd and potentially ending on November 30th. France which has been reporting records in new coronavirus cases and the most deaths since late April is expected to announce their set of restrictions. Italy and Spain have already announced similar moves, but now it seems virus woes will hit practically all of Europe. US cases, hospitalizations, and the death toll are all rising, with many concerned the virus is returning to both New York and New Jersey. NY cases surged to over 500,000 and NJ saw over 1,000 hospitalizations.
An overvalued stock market was ripe for a pullback, but when you focus on COVID-19 headlines, it looks more like panic-selling. The US might be a couple steps behind Europe on the virus and that means, we could see curbs again right around Election Day.
All sectors are lower on the S&P 500 index today, but that doesn’t mean the equities will give back all their gains since the March low. The world appears close to getting its hands on some coronavirus treatments and vaccines and that should alleviate long-term investor concerns that this selloff will trigger a correction.
The Canadian dollar held onto losses after the Bank of Canada (BOC) adjusted their bond buying program, shifting purchases to the long end. The BOC is focused on interest rates for households and corporate borrowing and it is pretty obvious they won’t ease up until the recovery is well on its way. The loonie got beat up badly following the dovishness from the BOC, collapsing oil prices, massive deterioration with the global outlook, and the beginnings of the US dollar breakout.
The BOC beat the Fed to adopting yield curve control, but expectations are high the Fed won’t be too far behind.
Google, Twitter, and Facebook shares got pummeled alongside the broader market selloff, with today’s Senate hearings just raising the likelihood that content moderation costs will soar. Much of today’s hearing were Senators trying to earn political points, while the CEOs defended Section 230 of the 1996 Communications Decency Act. Depending on who wins the election will determine how Sec. 230 will be updated. This is the beginning of lengthy talks that in the end will slightly impact the bottom line for Google and Facebook, but maybe a tad more for Twitter.
Crude prices tanked after bearish supply and demand news. Early weakness stemmed from news that the eurozone’s two largest economies, Germany and France will see restrictive measures that will be a major setback for the crude demand outlook. The oil price decline accelerated after a bearish EIA crude oil inventory report showed a larger-than-expected build, with crude production bounced back quickly following Hurricane Delta, and as optimism faded for both the gasoline and jet-fuel demand outlooks. The one bright spot was trucking demand from the e-commerce surge helped total products supplied rise to the highest levels since March.
WTI crude could remain vulnerable if the US follows Europe’s lead in bringing back tougher lockdowns. This amount of virus pessimism was expected to happen during the winter surge, which was hopefully going to be accompanied with positive news on the vaccines and treatments front. WTI crude should still see strong support in the mid-$30s, but that could tentatively break if the dollar rally is overextended.
Gold prices tanked as a global market selloff sent the dollar skyrocketing higher. The global economic recovery was dealt bad COVID-19 news on both sides of the Atlantic and that triggered panic-selling in gold.
After licking their wounds, gold traders are now waiting to hear from the Fed. After the close, Fed’s Kaplan will speak on a panel with Mark Carney, possibly providing a pivot from his recent stance that there is no need to expand the Fed’s asset purchases and support for winding stimulus down when the coronavirus crisis eases. Gold was a victim from a stronger dollar and that trade might last a little longer, until we see a clear signal that Fed is ready to do more. They are running out of options, but they need to signal something soon.
The global economic recovery has hit a roadblock with Europe and the US struggling to contain the virus spread. A return to lockdowns and restrictive measures will already pressure a weak labor market that will prompt governments and central banks to offer more support. The end of year global stimulus punchbowl will be a lot bigger-than-expected and that should be supportive for gold prices once the dollar rebound ends.