Stimulus progress and Brexit optimism weren’t enough to carry equities through the US session Monday, as risk sentiment faltered amid talk of a new lockdown in New York.
“If we don’t change the trajectory, we could very well be headed to shut down,” Andrew Cuomo cautioned. “The likelihood of more restrictions soon is high, so folks should begin making adjustments soon and work remotely if they can,” Bill De Blasio remarked.
The warnings came as a city nurse became the first person in the US to receive Pfizer’s COVID-19 vaccine, which was approved for emergency use late last week and began making its way to healthcare workers across the country over the weekend.
The prospect of a new lockdown in New York was enough to rattle markets and provided a bid for Treasurys, which ended mixed after trimming losses.
“Monday’s session commenced with a resurgence of the bear steepening momentum but resolved in a reversal as the resurgence of COVID-19 proved more impactful,” BMO’s Ian Lyngen and Benjamin Jeffery wrote, adding that “the prospects for renewed ‘full’ lockdowns in the US as well as Europe were credited for the shift in sentiment and we’re left to simply shrug, glibly concluding it’s par for the pandemic.”
Indeed. On Sunday, Angela Merkel said Germany would head back into a full lockdown from Wednesday, lasting through year-end. That news was expected, but unwelcome nevertheless. US deaths surpassed 300,000 on Monday.
US equities, which kicked off the session (and the week) looking for gains amid stimulus talks and another can-kicking exercise on the Brexit front, ended lower for a fourth session.
Energy shares were down sharply even as oil held up in the face of a demand forecast cut from OPEC. The dollar fell, but was off its worst levels.
Monday’s (ultimately lackluster) session came as the market awaits the Fed on Wednesday. Although consensus seems to be that WAM extension will be put off, a tweak to the forward guidance around QE is certainly on the table.
As noted here over the weekend, the irony is that while the rationale for Fed action is ostensibly clear (i.e., the danger to the economy posed by new lockdowns), financial conditions are already the easiest in history — on Goldman’s gauge, anyway.
Between that and various equity multiples at (or above) dot-come levels, there’s not much else the Fed can do, really.
