Risk revives in Europe
US Housing data on tap
Nikkei -0.18% Dax 0.44%
UST 10Y 0.70
Asia and the EU
North America Open
USD Existing Homes Sales 8:30
Any concerns about global growth revival were once against swept away in early European dealing as all risk assets reversed their selloffs and rose strongly in morning trade.
US stock index futures which opened as much as 70 basis points lower in Asia session trade flipped completely rising by more than 1% as once again buyers flooded the markets. In FX the story was similar as the buck weakened across the board and cable lifted from 3-week lows.
There was very little meaningful news over the weekend as EU fiscal stimulus talks continued, Brexit negotiations were once again ramping up and traders kept an eye on coronavirus cases which climbed to record highs globally.
The markets at this point remain utterly dismissive about the threat of COVID even as the virus continues to spread posting record-high numbers in series of Southern and Western US states as well as ravage Latin America and part of Asia. The underlying assumption is that despite the rise in infections the death rates continue to remain subdued as better treatment protocols as well more fit cohorts get the disease.
Such assumptions may be premature. While death rates have declined, the sheer increase in new cases almost assures that the numbers will inch back up, especially if the disease turns wildly exponential once again. With Florida, California, Texas all inching towards the 5000 infection rate per day such a scenario is entirely possible. One in five COVID cases requires serious medical care and the sheer number of infections could swamp facilities over the next 4 weeks especially in those areas that have essentially abandoned all precautionary measures.
That’s why despite markets’ nonchalant attitude COVID data may be the most important economic statistics of the day as it may force yet another wave of lockdowns or at very least retreat of economic activity as more and more infections as reported in the media.
For now, however, the risk on flows remain in place although as we noted last week the 3100 area in S&P and 10000 area on Nasdaq remain hard resistance points that bulls have not been able to batter through with any conviction so far.