The financial markets seem to be, at least for the moment, resistant to the successive implementation of new restrictions related to the return of the COVID-19 epidemic. Consequently, not only the fourth quarter of 2020 may be weaker, but also the first quarter of 2021, which seems to have not been priced by investors.
After information about an effective vaccine, the market fell into euphoria, which increased the risk appetite. Meanwhile, current information about the fact that before the vaccine will protect entire societies, another wave of the disease in Asia, Europe or the USA may await us, does not seem to make a great impression on the markets. The first financial instrument that could respond to new restrictions quite quickly may be oil. WTI crude oil futures fell below 47 USD per barrel on Tuesday because at the turn of the year demand for fuels may be lower than previously expected. Germany and the Netherlands are introducing new restrictions, the UK government has imposed stricter measures against COVID-19 on London, and in New York, the governor warned that the city is on its way to a second full shutdown. In Asia, the infections in Japan and South Korea have intensified, while the fourth wave of cases has occurred in Hong Kong. Meanwhile, OPEC has reduced its global fuel consumption forecasts for the first quarter of 2021 by 1 million barrels per day. The cartel is scheduled to meet on January 4 to assess, evaluate and possibly implement further actions.
Meanwhile, the stock exchange indices seem to be quite resilient to a possible deterioration of the economy in many countries worldwide. German DAX is growing by more than 0.6 percent, French CAC 40 is increasing by 0.6 percent, and futures on the major US indices are up by 0.4 to 0.62 percent. It is possible that due to the worsening economic situation, investors could expect further action from the US Federal Reserve. Today starts the two-day Fed meeting, which will end tomorrow with a press conference and an update of the macroeconomic projections. Expectations may grow that the Fed will further ease monetary policy by expanding its bond buying program or changing its parameters. These expectations are also reinforced by the fact that American politicians are still unable to agree on the fiscal package.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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