Will the worsening pandemic in the United States stop the vaccine rally?
Just days before the Thanksgiving holiday in America, daily cases of the coronavirus in the country are at record highs and the average death rate is at its highest since May.
At a time of the year known to bring families together, health experts and public officials are urging Americans not to travel in an effort to prevent the coronavirus from spreading even further. New York State Governor Andrew Cuomo has warned that there could be a “huge spike” in cases after Thanksgiving.
Economists are also concerned. “The Thanksgiving holiday could prove to be a very widespread event that could potentially affect activity data in December and January,” threatening economic growth, said JPMorgan chief US economist Michael Feroli.
For now, Wall Street seems unfazed. U.S. stock indexes are near record highs, encouraged by this month’s breakthroughs in vaccine research.
But strategists are increasingly worried about the economic damage caused by the surge in Covid-19 cases and the measures put in place to put an end to it. Last week, new jobless claims rose for the first time in five weeks. A growing number of states and cities have moved to impose restrictions on bars and restaurants, move schools to distance learning only, and tighten the limits on social gatherings. California has instituted a nighttime curfew in its hot counties: Massachusetts and Ohio have followed suit.
Last week, a public dispute between the Federal Reserve and the Treasury added to investors’ nerves the latter’s refusal to extend some of the market support facilities put in place since the crisis.
“With the worsening of the Covid-19 crisis and the slowdown in activity in the absence of tax assistance, the decision to reduce the Fed’s firepower could destabilize the markets and exacerbate economic stress”, Oxford Economics analysts said. Peter Wells
Is the European economy losing speed?
Investors will receive the clearest indication of the harshness of the second wave of coronavirus infections and lockdowns on euro area business activity when a widely watched inquiry is released on Monday.
Eurozone IHS Markit Composite Purchasing Managers Index is expected to point to a further decline in business activity in November, with the latest restrictions imposed by many governments weighing on consumer spending and business investment.
The overall PMI score – combining both services and manufacturing – is expected to drop to 49.3 from 50 the previous month, according to consensus expectations of economists calculated by Reuters.
This would be the first time since June that the reading has fallen below the critical 50 mark which indicates that a majority of companies are reporting a contraction in activity from the previous month.
The data – which is also expected to show a continued decline in services activity and a slowing manufacturing sector – will increase pressure on the European Central Bank to consider further monetary stimulus at its December meeting. board of governors.
Christine Lagarde, President of the ECB, warned last week that the economy “is expected to be severely affected by the fallout from the rapid rise in infections and the reinstatement of containment measures, posing a clear downside risk for the short-term economic outlook ”.
Jack Allen-Reynolds, senior economist Europe at Capital Economics, said the high-frequency data he tracks every day, such as traffic jams and public transport usage, took “a marked turn for the worse” in November. , especially in France and Italy. .
“All of this adds to the evidence that euro area GDP will contract in the fourth quarter,” he said. Martin arnold
Is the Fed ready to refine its asset purchase program?
The minutes of this month’s Federal Reserve monetary policy meeting will be released on Wednesday, giving investors a taste of how seriously the U.S. central bank plans to provide additional stimulus in light of the surge in cases of coronavirus around the world.
Although the Fed did not change its policy at its meeting in early November, President Jay Powell acknowledged that officials had had a “full range of discussions” around “the adjustment. [the] parameters ”of its asset purchase program.
The central bank buys treasury securities on all maturities at a monthly rate of $ 80 billion as part of its promise to buy an unlimited amount of US government debt to keep financial markets functioning and to support a recovery that economists fear losing momentum.
One suggestion that has gained popularity among investors is that the Fed focus most of its purchases on long-term debt. Such a move would in part help offset the huge amount of supply hitting the market as the Treasury Department seeks to fund further economic relief measures. According to investors, this would ensure that borrowing costs remain under control.
Steven Englander, head of macroeconomic strategy for North America at Standard Chartered, said the Fed could even go as far as increasing the overall size of its treasury purchases by 50% – to $ 120 billion per year. months – before its next meeting in mid-December. .
“In our opinion, he could make such a calculation in the coming weeks, with a surge of Covid-19 and a fiscal stimulus caught in the Bermuda Triangle of a partisan and lame Congress,” Englander said. Colby Smith