Risk off as COVID Fears Overshadow Vaccine Elation

11/16/2020 10:00 am EST

Focus: GLOBAL

Fiona Cincotta

MarketAnalyst, Currency Live

European markets ae pointing to a sharply lower open on the bell, following on from a steep sell-off on Wall Street overnight. The vaccine euphoria of earlier in the week has well and truly faded, replaced by concerns over record high Covid cases and more extensive lockdown conditions, explains Fiona Cincotta of Currency Live. 

Covid Cases Hit Record Highs 

In the UK, the number of Covid cases topped 33k. In the US the new number of daily infections Covid cases hit a record 130,000 per day. The acceleration in cases points to more economically damaging restrictions to stem the spread of the virus. In the US the need for tighter restrictive measures comes as the fiscal stimulus talks have stalled. This leaves the US economy in a precarious position of potentially tighter, economically harmful restrictions without a rescue package to prop up the economy. 

Here in the UK the overriding fear is that the one-month national lockdown simply won’t be enough. An extension of lockdown will deepen the economic scars left by Covid, lifting unemployment and making any form of economic recovery more drawn out and challenging. 

Risk-off Trading 

Risk aversion is dominating at the end of the week with investors pulling out of riskier assets such as stocks whilst flows into safe havens such as gold are on the rise. The rotation into value stocks and out of tech has been stopped in its tracks, with Nasdaq futures outperforming. This is a complete turnaround from earlier in the week when news of Pfizer’s vaccine candidate being 90% effective sent stocks surging to eight-month highs but dragged on US big tech. 

The vaccine elation has been replaced with the realization that the vaccine won’t be widely available for another four-six months. With Covid cases surging, these four-six months will be extremely challenging both from a health perspective and economically. So, whilst there is now light at the end of the tunnel, first there are a few very dark months, which must be survived. 

EZ GDP 

Looking ahead, Eurozone Q3 GDP reading is expected to confirm a record 12.7% rebound. Although with France & Germany, the Eurozone’s two largest economies back in lockdown and Italy considering it, a double-dip recession is almost certain, making Q3 numbers dated already. 

 FTSE Chart 

Whilst the FTSE looks to extend losses from the previous session, it holds on to the majority of gains from earlier in the week. On the daily chart, the FTSE continues to trade firmly over the five-month-old descending trendline, and its 200 day moving average, as well as its 50- and 100-day moving average indicating that the positive bias remains intact. 

Support can be seen at the 200 sma (6050) prior to 100 sma (6000). A fall below these levels & the descending trendline at 5950 could negate the current bullish break higher and see the FTSE resume its longer-term bearish trend. On the flip side, resistance can be seen at 6500 June high.  

FTSE

To learn more about Fiona Cincotta, please visit CurrencyLive.com.

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