KEY POINTS:
- Stocks drop on escalating virus risks…
- …but selling was curtailed into the close
- Germany likely to be added to the growing list of virus restrictions
- US consumer confidence, durable goods orders and Richmond on tap
- Ontario sets budget date
- South Korean GDP the lone overnight release
TODAY’S NORTH AMERICAN MARKETS
Well that was decidedly uncivil! A significant risk-off tone swept across global asset classes. Nuts to Mondays anyway. Headlines that Germany is also planning lockdowns applied to restaurants and bars but not schools, daycare centers or retail stores didn’t help.
Restaurants and bars are the focus because these high contact venues are thought to be responsible for a considerable portion of cases; this US study, for instance, estimated that contact with people who have gone to them makes one about twice as likely to contract the virus. At times, other jurisdictions, like Toronto, have stated just under half of community transmission can be traced to restaurants and bars. Who needs a study for this; tried scotch through an n95 lately?
If there is a silver lining then it lies in the fact that the final half hour of the North American session brought buyers back into the picture which could be a more encouraging hand-off to tomorrow.
Against this backdrop the Ontario government bravely committed to delivering a three-year budget plan on Fed day (November 5th) after cancelling the March budget. The province’s spreads over Canadas have retained improvement of late but remain slightly wider than pre-crisis (chart 1).
Nothing resulted from the 52-minute stimulus call between Mnuchin and Pelosi, but nothing much was expected at this point in any event.
- Stocks fell by 1.9% in the case of the S&P500 and about 1.4% in Toronto. The S&P was down by as much as 2.8% until a half hour before the close but bounced off bottom into the close. Europe closed down by between 1½% and 3¾% with the Dax leading decliners. Good luck Asia!
- Sovereign curves bull flattened with US 10s at 80bps (-4bps) and outperforming everyone else as a safe haven bid.
- Ditto for the greenback as the USD rallied against almost everyone. The C$ wound up being the worst performer among majors with Wednesday’s Bank of Canada meeting in sight and PM Trudeau downplayed incorporation of a fiscal anchor into the pending fiscal update.
- A decline of over 3% in oil prices didn’t help CAD.
OVERNIGHT MARKETS
Overnight markets through tomorrow will focus on light US calendar-based risk. Only backward looking South Korean GDP is on tap overnight (7pmET).
South Korea’s relatively successful containment of the virus is being rewarded with a gradual economic recovery. Q3 growth is expected to register 1.3% q/q non-annualized following a drop of 3.2% q/q in Q2 and should lift them out of a technical recession. However, South Korea is not immune to the effects of a rapidly rising second wave seen in other countries, which has created inevitable headwinds in Q4.
TOMORROW’S NORTH AMERICAN MARKETS
US macro releases will probably be overshadowed by off-calendar developments but consumer confidence will be closely watched.
Durable goods orders during September (8:30amET) are expected to rise again with orders ex-defence and air slated to rise for a fifth consecutive month. Consensus expects the Conference Board’s consumer confidence to be little changed in October’s reading (10amET) after the previously released UofM sentiment gauge increased a touch and with initial jobless claims sharply falling albeit for uncertain reasons. The Richmond Fed’s manufacturing gauge (10amET) will build upon ISM-manufacturing expectations after the Philly Fed’s measure moved higher along with the Dallas and KC metrics but against the decline in the Empire reading. Recall that the regional surveys under-represent transportation.
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