European and U.S. stock futures are very much under the influence of the coronavirus pandemic. Traders and investors are seriously worried that new lockdown measures could take the life out of last year’s stock rally. Yesterday’s sell-off was an early indication of this as we saw major US stock indices touching their 50-day SMA on the daily frame. There is no doubt that consumer spending, consumer confidence, and the labor market have all started to deteriorate not only in the U.S. but also in the U.K. and in the E.U. In the coming days, economic numbers are going to be dissected by market players, and special attention is likely to be paid to them.
The U.K.’s lawmakers have decided to push the country back into a national lockdown last night, and this is the third time British Prime Minister Boris Johnson announced this. There is no doubt that the government has failed terribly in controlling the coronavirus situation in the U.K. and this particular lockdown is highly likely to break the backbone for many businesses. Basically, we have two plagues, firstly it is the virus itself, and then we have the U.K. government, which is completely incompetent in controlling the virus. The fact that nonessential businesses will be closed until at least mid-February, we are highly likely to see very few businesses survive through this particular lockdown. This is because there is no business support announced this time.
The cliff edge is approaching fast, and all government support for businesses and especially for consumers is going to run out. There is a possibility that we may hear the Chancellor of Exchequer coming back in the spotlight and announcing more support for businesses. However, the fact is that consumers’ packets are empty now, mortgage holders are struggling to keep up with their payments, while income has been slashed several times. Mortgage holders are no longer eligible for government support schemes because they used them before. Even during the second lockdown, consumers who utilized the government support schemes the last time weren’t allowed to avail the same facility again. This is going to push the mortgage default rate much higher and much quicker this time.
Coronavirus vaccine is the only bright spot during this pandemic time. The U.K. has started to deploy AstraZeneca’s vaccine, and this comes on top of Pfizer’s vaccine, which began back in December last year. However, the process is slow as it will take us until February, when the most vulnerable people have their first shot done.
Prime Minister Boris Johnson said last night he is hoping that this is the last time that he will need to announce a national lockdown, and perhaps he may be right this time. However, the fear is that the consequence of this particular lockdown on the U.K.’s economy is very much likely to be much stronger than the previous one.
One of the chief concerns among traders is that there is a strong possibility that there could be another national lockdown in the U.S. as the coronavirus situation isn’t that healthy in the U.S. as well. The fact that Joe Biden is unlikely to resist another lockdown. Donald Trump resisted pushing that button. The fear is that by the time the U.K. could be coming out of its lockdown or could be midway through its third lockdown, we could hear another news of national lockdown in the U.S.
If this scenario plays out, we are very likely to face a lot of trouble for the major stock indices such as the S&P 500, FTSE 100, Stoxx 600, and many more.