Fears of a second wave throughout a number of red states raises questions over both the U.S. recovery and Trump’s election hopes.
Market volatility is rife once again today, with the opening of U.S. markets once again driving down sentiment throughout Europe. The role of central banks throughout this crisis has been considerable, and this week’s Fed actions have highlighted exactly how reliant investors are upon Powell & Co.
However, government loans and grants are no substitute for actual economic activity. Powell’s speculation that small businesses could fold under the pressure of this crisis fails to highlight the lasting impact for those larger stocks that could be laden with debt or severely diluted once all is said and done.
The risk for markets is that the U.S. resistance to restricting movement could lead to a COVID surge that is too big to ignore, driving another major lockdown. With many of the Southern states seeing a surge in hospitalisations, traders are becoming increasingly fearful of another raft of lockdown measures.
Given the fact that many of the recent outbreaks appear to have come from Republican-run states, the pendulum appears to be swinging toward Joe Biden with just five months until the U.S. election.
Today’s Ipsos Mori poll puts Biden in a 13-point lead over President Donald Trump, presenting another major risk for traders as they consider the path ahead.
The FTSE 100 has highlighted a move toward more domestically focused stocks, with housebuilders in particular gaining ground. The risk that another U.S.-centered surge in coronavirus cases could limit tourism numbers has dented confidence in travel stocks such as IAG and Carnival.
The outperformance of the FTSE 250 compared with the FTTSE 100 highlights how markets see the risk as being external in nature. Meanwhile, on the FX front, dollar and yen strength highlights inherent strength for haven currencies as traders remain uncertain in the wake of recent market wobbles.
U.S. crude inventories rose by another 3 million barrels last week, as the market continues to highlight a continued imbalance in the wake of the virus lockdowns. However, there are signs that the trend may be turning, with gasoline and jet fuel consumption on the rise as travel starts to pick up.