Increasing social restrictions in the US in response to unabated advance of coronavirus cases appears to be a convenient reason to extend stocks correction on Thursday. SPY and QQQ closed down 1.2% and 0.74% on Wednesday while decline of index futures on Thursday suggests that US markets are likely to open lower today. USD index, bouncing to the upside is an extra signal of strong risk-off mood as key bullish catalysts (Biden’s win, vaccine news) have been already reflected in prices.
The release of manufacturing activity figures from the Philly Fed, initial claims for unemployment benefits, US home sales today are expected to pass unnoticed as the focus is on the short-term impact of the new social curbs. New York's decision to move schools to distance learning was a punch to economic recovery as this may also lock at home a good part of economically active population (i.e. parents). In addition, it leaves the question open about extension of restrictions as the path to new records appears to be unchecked. Meanwhile, the daily growth in the US has renewed record this week exceeding 190K cases, while the 7-day trend remains upward:
Note that the Europe brought its epi curves under control after more or less strict restrictions were introduced. The United States will probably have to follow the same path.
It is important to keep tab on the deadlines for extension/easing of lockdowns in Europe as potential catalysts for stocks decline/rebound:
Germany decides on the current lockdown on November 30, but today the head of the Koch Institute (advising the government on the epidemic) apparently has tried to leave a room for a possible extension, stating the following:
So, on November 30, there is a chance to see a shocking announcement from German authorities and current price action in equities may reflect these concerns already.
On November 22, the decision on lockdowns is expected in Italy, the shape of the epi curve there, as well as in Germany, draws the second peak (see chart below). On this basis, we can assume that Italy decision can help to predict German’s one:
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