A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
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Andrew Kositkun Foreign Exchange Head Trader
Twelve days ago, new COVID-19 cases were on pace to double every two weeks. Since then the case growth rate has slowed significantly. The growth rate of the seven-day average of new cases in the U.S. has slowed from a peak of 47% per week on Nov. 11 to roughly 11% now.
While this is good news, it is likely a false dawn. The surge in cases seen earlier this month followed a series of potential superspreader events — Halloween, the election, and post-election rallies by Biden and Trump supporters. The recent drop in the case growth rate likely represents the impact of these events rolling off.
Coming off the Thanksgiving holiday, another surge in COVID-19 cases is likely just as we move into another holiday season. This sequence of potential superspreader events is one of the reasons why epidemiologists have been warning of a major winter outbreak. Of course, the cold weather doesn’t help either as it pushes people inside, where the virus spreads more easily.
Even without cold weather, major holidays have played a role in spreading the virus. Following the initial outbreak, the seven-day average of new cases bottomed three days after Memorial Day. A second bottom was then seen five days after Labor Day. This pattern is why many experts believe the recent drop in cases is a temporary trend. Holidays, colder weather, social distancing fatigue and hesitation from policymakers to impose new restrictions probably means case counts will remain worryingly high through January 2021.
The economic implications of this are potentially significant. Intensive care unit (ICU) occupancy rates across the country are already higher than they were on average in the spring. As we see a rise in hospitalizations and deaths, two indicators that trigger stronger reactions from people and policymakers, two things are likely to happen. The first is increased official restrictions curbing economic activity, and the second is a voluntary pullback in consumer activity. With the next round of fiscal support in the U.S. unlikely until after Inauguration Day, the economy is facing stiff headwinds. This is why some analysts are concerned about Q1 GDP growth turning negative and why current U.S. dollar softness is unlikely to morph into a sharp and broad-based decline.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
G10 data releases are very light today, and most U.S. markets will be open for half a day as consumer spending on Black Friday remains in focus.
A strong rally for U.S. equities this month indicates strong U.S. dollar month-end selling as equity managers match up additional short-USD hedges to align with their increased U.S. equity positions.
Brexit headline risk this weekend remains high. Roughly five weeks remain to strike a deal in time for the year-end deadline. Market price action implies that there is broad consensus for a Brexit deal. As indicated in past commentaries, the realization of a deal will likely result in a relief rally that pushes the pound higher, but the bias would be to fade this bounce as it will likely give way to a pullback once focus shifts to the economic challenges stemming from a Brexit deal that is still an economic negative.
OPEC+ ministers will meet tomorrow for an unscheduled gathering amid signs of division among members. The expectation is that the group will discuss a deal in raising its output.
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