Profit Talking Post Fed

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Indices lose -1%
COVID fears return
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USD Weekly jobless claims 8:30

Stock index futures were lower by 150 basis points or more in morning European dealing as the post FOMC hangover finally kicked in on risk assets.

Yesterday we wondered if the massive rally ahead of the Fed meeting would be met with selling afterward if Mr. Powell offered no fresh policies and that is exactly what happened today as traders decided to take profits in wake of no fresh news.

Mr. Powell maintained the Fed’s highly accommodative stance, noting that policymakers weren’t even “thinking about thinking” of raising interest rates yet. But as we noted earlier this week, “any non-action by Fed will be viewed as monetary tightening” and this seems to be the case. For the market fueled only by the liquidity of the Fed, chair Powell’s “wait and see attitude” was a clear dampener on investor sentiment pushing risk assets lower today.

Adding to the decidedly more worrisome tone was news that several large US states are seeing a new rise in coronavirus cases with Texas reporting its highest daily caseload ever. The seven-day averages in some of the largest states in the Union including Florida Texas and California have been trending higher suggesting that the R0 transmissivity ratio is well above 1 which should be a huge worry to the market as it would indicate that those states could see more than 50,000 fresh infections within a month prompting fresh lockdown orders or simply a voluntary retreat from social and economic activity.

The US remains woefully unprepared to living with COVID within its midst alternating between a complete denial of the threat to complete lockdown form it while refusing to provide any national guidelines that would mitigate the spread of the virus while enabling relatively normal economic activity to take place.

Markets are underpricing this risk tremendously and if COVID retakes the headlines again the selloff could turn mich more violent over the next week or so.

Boris Schlossberg
Managing Director

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