Markets Flatline After Yesterday’s Rout

Market Drivers October 27, 2020

  • Equities stage mild rebound after yesterday fall
  • COVID cases continue to rise
  • Nikkei -0.4% Dax -0.72%
  • UST 10Y 0.79%
  • Oil $38.78
  • Gold $1900/oz.
  • BTCUSD $13132

Asia and the EU

  • No Data

North America Open

  • USD Durable Goods 8:30
  • USD Consumer Confidence 10:00

Markets were essentially flat in Asian and early European trade after a steep sell-off yesterday as investors kept a wary eye on the dual event risks of the US election and rising COVID cases on Europe and North America.

Yesterday, the markets sold off hard after it became evident that no fiscal stimulus will be forthcoming before the election while the near parabolic rise in COVID infections threatened to force many governments in Europe to institute fresh lockdowns that deeply curtail economic activity.

The COVID story remains a persistent worry as the virus continues to spread unabated throughout Europe despite stringent social distancing and masking rules. Authorities now believe that France could reach 100,000 infections per day while Germany is on a path to 20,000 daily cases.

Adding salt to the wound is a new study from Imperial College in London suggesting that COVID herd immunity may not exist as those infected by the virus lose the antibodies against the disease within 3 months.

All of this continues to weigh heavily on equities which have soared on the assumption of a V-shaped recovery and a pick up in global demand. If instead, the G-2 economies will see a curtailment of economic activity as we approach winter all the bullish expectations will be reduced and stocks could sell-off further. Many analysts have pointed out that sharp selloffs such as the one we saw yesterday typically have a follow-through to the downside before finding some support and today’s tepid rebound is a sign that bulls are not able to muster much enthusiasm for buying the dip just yet.

On the eco front, the calendar is quiet with just Durable Goods on the docket and Consumer Confidence. Consumer confidence is expected to inch higher to 102.1 from 101.8 which could provide equities some lift but unless the number markedly beats the forecast it’s unlikely to have much impact. As we noted yesterday all eyes this week are on the earnings of Big Tech and more importantly their forward guidance into Q4 of this year. Unless companies surprise to the upside and reaffirm that final demand remains strong it’s difficult to see stocks rising from here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.