A euphoria triggered by optimistic vaccine-related headlines fades and is being quickly overshadowed by the rapidly worsening COVID-19 situation. The US dollar strengthens, equities decline, but tech stocks attract investors once again.
A partial reversal of some wild moves, which were spurred by an unexpected announcement by Pfizer is dominating the markets. The EUR/USD pair settles in the middle of the recent 1.16-1.20 range. Leading crude oil benchmarks give up part of the gains. Commodity and risky currencies grind lower. Safe havens, as JPY and CHF look poised for some appreciation.
COVID-19 fears in the limelight
Investors become more and more worried about the worsening COVID-19 situation. Globally, the daily number of deaths is the highest since the outbreak of the pandemic. Nonetheless, right now the main focus is on the United States, where the numbers of both new confirmed cases and hospitalizations are record-high. Consequently, markets have begun to price-in a sharp deterioration of the economic growth due to an increasing probability of renewed lockdowns and restrictions, above all in the New York area.
The pound focuses on the Brexit negotiations
The cable (the GBP/USD) advance faded from 1.33 to 1.3170 as market euphoria wanes, the greenback (the US dollar) strengthens and growth prospects give little reason to cheer. Regardless, Brexit remains the key driver and ultimately should lift the cable. For now, the EU-UK trade talks proceed without a breakthrough in sight. According to the most recent press headlines, nothing points to the possibility of reaching a deal this week. Consequently, the Brexit negotiations will extend into the second half of November.
Each day of political gridlock brings us one step closer to a no-deal scenario, and some nervousness may arise. Things could get real nasty for the pound if there is no agreement by the end of the month. This, however, is not a central scenario, and some progress in talks should be achieved next week. On Thursday, Q3 GDP numbers came in as well. The quarterly print at 15.5% quarter-on-quarter turned out to be a tad below market consensus but still was the largest expansion on record after the economy shrank almost 20% in the Q2.
Conotoxia research team