As the number of coronavirus cases surged again in Europe, the Austrian government announced on the 19th (local time) that it would enter a nationwide lockdown starting next Monday. The lockdown lasts at least 10 days. Partial lockdown will also begin next week in Germany. The most populous state of Bavaria has decided to close its bars and clubs for three weeks. As a result, stock indices in the UK, Germany and France closed down 0.3-0.4% on the day.
“Fears that the virus and the lockdown will again spread across the continent have hit the European market,” said Jim Reed, chief economist at Deutsche Bank. “Europe is the center of the news right now, but the coming winter will not make the US more vulnerable than many European countries,” he said. lower,” he said.
Vaccination rates in Austria are 64% and even higher in Spain (79%), Italy (74%), France (69%), United Kingdom (69%) and Germany (68%).
Depressing news from Europe had an impact on New York. Investors recalled the July-August period when the ‘delta mutation’ struck. The Dow opened at -0.6% and the S&P 500 opened at -0.13%. The sharp decline in the Dow was due to a 5.7% decline in the Wall Street Journal (WSJ) report that Boeing had slowed the production of the 787 Dreamliner due to an aircraft defect.
Interest rates also started sharply in favor of safe assets. The yield on the 10-year U.S. Treasury fell to 1.536% today from 1.586% the previous day. Nasdaq alone started trading with a 0.28% gain as ‘home-beneficiaries’ emerged again amid concerns about the corona virus + falling interest rates.
In the end, the Nasdaq closed 0.4% higher, while the Dow fell 0.75% and the S&P 500 fell 0.14%.
By stock, Adobe, Meta, Nvidia, etc. surged, and Microsoft, Apple, and Google also rose. On the other hand, airline stocks such as United Airlines, cruise stocks such as Carnival, travel stocks such as Airbnb, and energy stocks such as Baker Hughes all showed a sharp decline.
International oil prices also plummeted. Brent crude fell 3.41% on fears that a European lockdown would curb demand, while West Texas crude plunged 3.67%.
Ross Mayfield, a strategist at brokerage Baird, told CNBC that “the market was as terrified as expected by the news of the coronavirus. It doesn’t appear to have taken into account advances in methods to combat the virus, such as vaccines and antivirals.” “It will probably make it through this spread,” he added. “There have been many spreads and mutations up to the delta mutation, but the market hasn’t crashed, partly because of hand-swapping between stocks below the surface, and partly because whenever a virus strikes, we learn more about how to deal with it and live together,” he said. I can learn from it. I don’t think Corona is no longer a major concern for market participants.”
Credit Suisse Strategist Jonathan Gollub said, “I don’t think the current situation will change much.
“There is a positive correlation between changes in country’s vaccination rates and the number of coronavirus cases,” JP Morgan said in the report. “The recent increase in cases has been seen in countries where large populations were vaccinated a few months ago, but less progress has been made on additional booster shots.” It seems to reflect the weakened immune system of the
The comments from members of the US central bank (Fed) continue this week. Seven people stood on the platform the day before, but it did not significantly affect the market. But today was different.
“The rapid improvement in the labor market and the deteriorating inflation indicators are favoring a faster tapering and faster removal of easing in 2022,” said Christopher Waller, director of the Board of Directors. “If the economy is making rapid progress towards maximum employment, or if inflation indicators show no signs of retreating from their current high levels, the FOMC could speed up the tapering,” he added. “If we double the tapering rate in January next year, it will be completed by early April. If the Fed decides it’s the right choice, it could raise rates as early as the second quarter,” he said.
Even more influential was Vice-Chairman Richard Clarida’s afternoon speech. “The US economy is in a very strong position and there is an upside risk for inflation,” he said. Clarida did not say he would prefer that, but explained that changes in the rate of asset purchases would be decided by the entire committee.
When Clarida’s Vice Chairman’s remarks were delivered around 12:40 pm, the S&P 500 index fell into negative territory. The two-year bond, which had fallen sharply, quickly made up for the decline as the possibility of a key rate hike increased. In the end, the trade ended at the 0.518% level, up about 1bp.
A Wall Street official said, “Since the vice-chairman of Clarida is considering resigning, he seems to be doing everything he originally thought.”
Clarida, whose vice-chairman term expires in January next year, is likely to announce his resignation soon. Vice Chairman Randall Quals, who was also appointed by former President Donald Trump in 2018, announced a week ago that he would step down from the Fed at the end of the year. Both of them have more than 10 years left in their term of office (14 years), but it is a common practice to hold office as chairman or vice-chairman and then step down if not reappointed.
President Joe Biden is due to nominate the next Fed chairman between the 22nd and 24th, before Thanksgiving next week. The White House has announced that it will be announced later this weekend and before Thanksgiving.
If President Biden appoints Rayle Brainard as new chairman instead of Chairman Jerome Powell, Democrats will be able to re-appoint four of the Fed’s seven core directors. Because one seat was originally vacant, and Powell will definitely step down from Quals + Clarida. These 7 members make up the majority of the 12-member FOMC. If the four are dovish, the easing policy could go on for a long time. Even if the recent Fed members’ remarks are ‘hawkish’, the impact is not significant because the Fed can be completely reorganized.
The US House of Representatives today passed a $2 trillion ‘Build Back Better’ (BBB) budget. 220 votes in favor and 213 votes against. There was only one dropout from the Democrats. It aims to expand free childcare, support medical insurance, expand care for the elderly and the disabled, respond to climate change and expand eco-friendly investment, and improve the immigration system. Not long ago, it was $1.75 trillion, but it surpassed $2 trillion with the addition of immigration-related budgets (about $100 billion) and paid family leave (about $200 billion).
Yesterday, the Congressional Budget Office (CBO) said the bill would increase the federal budget deficit by $367 billion over the next decade, but it was passed.
But not all passed. A Senate vote remains. If you want to pass the Senate, which has 50 Democrats and 50 Republicans, you must not leave any Democrats. However, the prevailing view is that moderate Senators Joe Manchin and Kirsten Cinema won’t go unnoticed. Manchin has already expressed his strong opposition to paid family leave.
Wall Street expects the bill to be reduced and sent back to the House after a major revision in the Senate. And after a lot of twists and turns in the House, it is expected that it will be fully passed before Christmas this year and headed for President Biden’s desk. This is why the news of the passage of the BBB budget on the day did not have a significant positive impact on the stock market. Of course, most of it has been reflected in the past few months.
Oxford Economics predicted that the implementation of the BBB budget would boost the US economic growth by 0.4 percentage points in 2022 and 0.5 percentage points in 2023, and create 750,000 jobs by the end of 2023. In addition, the $1.2 trillion Infrastructure Act (IIJA), which has already been signed by President Biden, is expected to increase growth by 0.1 percentage point in 2022 and 0.3 percentage point in 2023. And it is projected to create 150,000 jobs by the end of 2023.
New York = Correspondent Hyunseok Kim [email protected]