Stocks Resume Slide As Virus Rages

• Equities dive as France and Germany consider lockdowns
• Euro below 1.1800
• Nikkei -0.29% Dax -0.93%
• UST 10-year 0.76%
• Oil $38.44
• Gold $1905/oz.
• BTC/USD $13646.

North America Open

• USD Trade Balances 8:30
• CAD BOC Statement 10:00

Equity markets were lower once again as lockdown fears gripped Europe amidst a worsening COVID spread that threatened to impair the continent’s biggest economies.

Markets were in a sour mood on Wednesday both Germany and France considered month-long lockdowns to slow the spread of coronavirus which infected more than 450,000 people over the past seven days. Hospitalizations in many of the region’s biggest members are starting to hit levels not seen since the peak of the crisis in April and governments are clearly becoming concerned that they have lost control of the pandemic response and fearful that it could swamp the medical system if the spread is not halted.

US equity futures were lower as well but the reaction was more muted with S&P down only 50 basis points while NASDAQ slid 70bp. NASDAQ continues to be the most volatile index as it has perhaps the most to lose from the impending second wave. The index has rallied the most on the assumption of the V-shaped recovery, but if the second wave continues unabated across both Europe and the US demand will clearly slow down and optimistic assumptions about a rebound in growth will be pushed back to Q2 of 2021 precipitating further profit-taking.

This week brings a slew of earrings from the marquee companies including Apple (NASDAQ:AAPL) Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) and investors will be watching for any signs of caution in forward guidance from those companies.

In FX the flows were more muted but the EUR/USD is clearly feeling the pressure with the pair now trading below the 1.1800 figure as investors grow wary of the economic impact of the possible second lockdowns. The pair has been relatively immune from COVID news until this week but as the reality of the second wave begins to sink in it could see further weakness from both internal factors and the pick up in risk-off flows in stocks.

The calendar is quiet today, but FX traders will get to react to the BOC rate announcement and presser later in the day. Most market participants expect no change from the central bank but traders will be keen to see if monetary authorities hint at even further easing measures such as negative rates and yield curve control.

So far the BOC has resisted such radical policy choices but if leaves open the possibility of such action USD/CAD could easily test the 1.3300 figure especially if risk-off flows continue into to North American session.