Panic Selling is back, Hospital Capacity Concerns, Lite scramble for cash, Can we have an ECB surprise? Commodities drop as virus rages
It is getting very ugly out there and it has nothing to do with the election. COVID-19 anxiety is back as hospital capacity concerns across the northern hemisphere will likely mean lockdowns will firmly be back in place.
Last night felt like it may have been the end of the path towards the return of normalcy. Baseball was able to finish the World Series, albeit in a bubble, but the focus for many fell with the LA Dodger third baseman, Justin Turner getting pulled in the middle of the game due to testing positive for COVID-19. The Dodgers’ World Series title celebration quickly drew scrutiny after Turner joined his teammates and their family’s celebration on the field, possibly becoming a superspreading event. Virus fatigue is growing for many Americans, Europeans too and the pessimism for the stock market is just accelerating as too many regions are unable to contain the virus spread.
Airline stocks today are getting punished after NYC Mayor Bill de Blasio urged city residents to stay put this holiday season, as the number of COVID-19 cases nationwide climbs to its highest level since the start of the pandemic.
Nothing should compare to the selloff that occurred in the Spring, but right now virus concerns, lack of stimulus, and election outcome uncertainty have forced investors to scale down their reopening bets. Wall Street is fixated on the negative outlook, forget GE and Boeing’s strong earnings beats, all that stands out is the airplane maker’s 7% workforce reduction by the end of 2021.
The S&P 500 index seems poised to test the September lows, but a significant move lower seems unlikely as grim virus news will force the hand of central bankers and lawmakers. The US could see record hospitalizations by Thanksgiving and that will force Congress to deliver state and local aid before the end of the year.
Boeing shares initially rose higher after delivering a smaller-than-expected loss and announced job cuts. GE’s stock rose after posting a surprise profit and showed some improvement in the aviation segment. It is a shame to see the sea of red drown out the positive news from these two industrial titans. While Boeing’s workforce reduction will resonate across the industry, the path forward is starting to look brighter.
Virus worries have the dollar strengthening against all its European trading partners and emerging market currencies. The pressure is growing in credit markets as investors jump out of high-yield bets. HYG, the largest high-yield ETF had $884 million taken out yesterday, the largest outflow since mid-September. It has been a while since credit risks were discussed and this will likely trigger action from the Fed.
In the volleyball game of central bank easing, Thursday’s ECB meeting is supposed to set the December 10th meeting for a spike with the expansion of its bond-buying programing. The outlook has deteriorated a lot faster than anyone expected and there is a growing minority that will call for a surprise action tomorrow. The euro is on the ropes as currency traders brace for a rather dovish ECB policy meeting. If we don’t see surprise action tomorrow, ECB’s Lagarde will likely signal that they have yet to use half of the pandemic purchasing program. Technically there is no rush to act, but if she wants to send a strong message and get the most bang for her euro, surprise action is warranted.
The past 24 hours have been disastrous for oil markets. Oversupply supply concerns returned as US stockpiles rose and after concerns from Aramco Trading CEO that lackluster demand will make it hard for extra OPEC+ oil to find a home. After yesterday’s large API build of 4.7 million barrels, energy traders will quickly move beyond today’s EIA crude oil inventory if stockpiles rise. It is all about the demand outlook for oil prices and the return of lockdowns and restrictive measures across Europe and the US will not help. WTI crude should find support ahead of the $35 level, but if it doesn’t, watch out. Momentum selling hit Brent on the break of the $40 level and $38.75 will carefully be watched.
Crude prices will likely tumble further if the global equities continue to slide.
King dollar knocked gold off its’ high horse of stimulus expectations as an expected wobbly period before the election turned into panic selling. Europe’s deteriorating outlook due to COVID-19 has turned the spotlight on the ECB and that is sending the euro into freefall. A strong dollar on Europe’s woes has investors scrambling for cash and unwinding many of their anti-dollar bets, such as gold.
Gold didn’t even blink at the $1,890 level and could be vulnerable towards $1,850 if today becomes a bloodbath on Wall Street. Gold is always vulnerable to trading sessions like today, but the longer-term outlook still remains bullish. Once the panic-selling is over, gold will benefit again from the stimulus trade as the ECB will be forced to do much more than what was expected and the Fed is not too far with some risks creeping into the credit markets.