Daily Market Color

Equities Drop to June Lows as Global Virus Cases Climb

Equities hit four-month lows as global virus cases surge
COVID-19 hospitalizations in the US are nearing pandemic highs with other countries are imposing lockdowns once again.  During his national address Wednesday evening, French President Emmanual Macron announced a nationwide lockdown beginning Friday with restrictions similar those in March.  Macron added, “The virus is circulating at a speed that not even the most pessimistic forecasts had anticipated.”  Germany is adopting a similar strategy, as Chancellor Angela Merkel has ordered an immediate shutdown of non-essential businesses.  Meanwhile, the US set a daily record for COVID-19 cases for the third consecutive day on Tuesday at 71,832 cases.  The seven-day average of cases is tracking 21% higher than the previous week according to Johns Hopkins University research.  Dr. Anthony Fauci attempted to calm concerns when he commented that he is “very certain” a vaccine with be approved in the coming months, but added, “I think it will be easily by the end of 2021, and perhaps even into the next year, before we start having some semblances of normality.”
Major indexes fell to lows last seen June 11th — the S&P 500 and DJIA closed 3.5% and 3.4% lower.  The VIX, which measures equity volatility, shot up to its highest level since June.  Treasury yields and swap rates remained in a tight range — the 10-year closed 1 bp higher.  UST yields are trading 1-4 bps higher this morning.
US Q3 GDP rises past expectations while initial jobless claims fall to a pandemic low
The first reading of Q3 GDP showed a 33.1% increase after plummeting 31.4% in Q2.  The growth offsets some of the severe contraction from Q2, most of it driven by businesses reopening and weekly unemployment benefits. 

Initial jobless claims for the week ending October 24th also hinted at an economic recovery, as the number fell to 751,000 from 791,000 the week prior.  Despite remaining stubbornly high, claims are currently at a pandemic all-time low, and economists predict the downward trend will continue for the coming weeks.
Oil prices fall to a four-month low
As countries in Europe impose lockdowns, investors are forecasting another large drop in demand for oil.  To add fuel to the fire, yesterday’s EIA petroleum report revealed excess US crude production caused stockpiles to rise well past expectations.  The potential for falling demand coupled with oversupply caused oil prices to fall sharply on Wednesday, as investors fear another energy crisis could be around the corner.  US WTI fell 5.5% to $37.39/barrel while Brent fell 5.1% for $39.12/barrel.  

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