September 21, 2020

European Markets Trade Sharply Lower

European Markets Trade Sharply Lower

European markets and U.S. futures are starting the week on the back foot. Investors have decided not to back the riskier assets, despite the fact that the U.S. equity market is off over 10% from its recent all-time high—particularly the Nasdaq and the S&P 500 indices. The fact that the WHO has warned about serious coronavirus infection rates developing in Europe, and central banks’ have decided to leave their monetary policy unchanged—we had a number of central banks announcing their monetary policy decision last week—have given no further reason to investors why they should increase any of their equity bets. In short, traders have decided to sit on the sidelines, and the lack of support for risker assets could make the selloff for the equity markets a little more intense this week. 

Bears Taking Control

In terms of momentum, it is the tech sector in the U.S. which is still leading the selloff. The Nasdaq composite index recorded three consecutive weeks of losses, the longest losing streak since March this year. Investors are hoping that they will hear good news in relation to the second stimulus package, and that policymakers in Washington will put aside their differences. However, so far, the chances are still slim, and in the absence of another stimulus package, the reality is that the economic recovery in the U.S. may have seen its summer peak. Policymakers are still a million miles away in terms of their differences, and it seems highly unlikely that we will see anything positive on this matter during this coming week. 

Vaccine and Hopes

President Trump is trying his best to assure Americans that a coronavirus vaccine is likely to be here very soon but investors believe that it could be many months away. Given the fact that we are marching towards the winter month, the flu season is likely to kick in soon. Targeted lockdowns are already taking place around the globe, and the fear is that these are likely to turn into national lockdowns. It is certainly possible that if coronavirus cases continue to increase, smaller periods of national lockdowns may become a reality. Despite the fact that these national lockdowns may only last two weeks, nevertheless, the economic impact is likely to be significant.

Fed Speeches

In terms of this week, investors are going to hear more from the Federal Reserve’s Chairman Jerome Powell, who is going to testify in front of US lawmakers and explain the Fed’s monetary policy response to coronavirus. A number of other Fed committee members will also be speaking over the next two days, and conflicting information may create more uncertainty. It is the dollar index that is likely to see most of the volatility and this means large price swings for the precious metal. 

Andrew Bailey And Negative Rates

Over in the U.K, the Bank of England’s Governor Andrew Bailey will be speaking and investors will gauge from his comments if the bank is actually serious about implementing negative rates in the U.K., and more importantly, under what circumstances. The fact that the Governor mentioned the negative rates during their monetary policy meeting, it clobbered bank shares and this trend is likely to continue this week as well.