New restrictions, due to a surge in coronavirus cases, is very much influencing the sentiment among traders. Basically, there is no scarcity of bad news in the market. It doesn’t matter if one is looking at the potential coronavirus vaccine’s performance or the current earnings season. It is pretty much a dark cloud covering everything in site for investors.
But despite all of this, it was intriguing to see that the U.S. stock market moved off its lows last night, and despite the fact that the U.S. futures are trading lower today, there is some evidence–in terms of price action–that there are plenty of bargain hunters in the markets.
The reason for this is that it was pretty much expected that coronavirus cases would jump as we move towards winter. As for the potential vaccine, remember this is an unprecedented situation; no one expects a potential vaccine to be here without facing obstacles. Even if we have a vaccine by early next quarter, it will still be a miracle that a vaccine was developed in this time frame.
News Restrictions in a Struggling Economy
Having said that, one element of uncertainty that is adversely influencing the investor appetite for riskier assets is that we are seeing restrictive measures at a time when businesses are already struggling. Regional lockdowns are going to anchor the number of bankruptcies.
In addition to this, we do not have the same support for business as we had back in March, especially in the U.K. The unemployment rate is ticking higher, and with new lockdown measures, it is going to shoot up even faster. The intriguing element is that the government has already said that it cannot save every job, meaning the same kind of support isn’t going to be available for everyone.
Suppose the coronavirus situation continues to rise in the same magnitude as it is now. In that case, it is highly likely that another circuit-break strategy will be deployed, and this means a national lockdown. Political leaders who are trying their best to resist the idea of a national lockdown will have no other option but to cave in. If a national lockdown does take place, it will choke the economic activity closer to death.
A Case for Stimulus
Over in the U.S., the stimulus hopes came back to life once again after House Speaker Nancy Pelosi showed more willingness to work with the House Democrats in order to address the stimulus needs. The economic conditions are deteriorating in the U.S. The Federal Reserve has even made it clear for the policymakers that they need to act, as the U.S. economy needs a sizeable package—a small stimulus package is likely to harm the economy, according to the Fed Chairman, Jerome Powell.
Given that there are less than three weeks left for the U.S. election, it seems immensely difficult how the lawmakers will be able to pull a deal together before the U.S. elections, especially given their previous differences.
In the currency market, the pound is still taking a beating, as there is little to no optimism among investors concerning the Brexit deal. The E.U. leaders asked the U.K. to cut some concessions yesterday, and the Sterling plunged on the back of this news. Moreover, the U.K.’s Chief Negotiator also hit back by showing not much willingness to move his stance on the Brexit deal. The sticking point between the two remains about fishing rights.
French President Emmanuel Macron has also started to adopt a more familiar tone by saying a no-deal is likely between the U.K. and the E.U. A no-deal Brexit scenario is certainly not priced in the market, and if lawmakers continue to play the game, an accidental new deal Brexit can happen. Under that scenario, an Armageddon is likely to hit the U.K. and European markets.