Europe’s ‘second wave’ is one more risk factor for the US stock market to navigate. The FOMC can pledge to keep interest rates zero until 2023. It is, indeed, a powerful message. But the zero bound simply shifts the burden of adjustment into the real world. No amount of monetary easing can fully counter the negative impact of a rolling, second lockdown.
Not all of Europe has been affected heavily by wave two – yet. And Sweden’s better trajectory does give ammunition to the ‘herd immunity’ advocates. Others argue that the rise in fatalities across Europe needs to be compared with the spring numbers: comparing infections is not important, since treatment has improved. The Japanese anti-flu drug Favipiravir is the latest addition to the range of drugs that have been shown to slow down the advance of Covid-19 in patients. The number of new vaccines entering into trial is a big positive too.
Daily new infections have climbed in the US over the past week. But the trend for deaths has shown no sign of turning up: the past week has fallen from 1,096 to 958. Nevertheless, the stock market may continue to struggle, as investors recalibrate after an extraordinary run-up in technology shares. Last week saw big losses for nearly all the FAANGs.
One of the big momentum trades bucked the sell-off last week. Tesla was up 18.6% last week. Tesla remains an important bellwether for ESG investing, and the intensifying pressure on carbon emitters.
Summary
• Rising Covid-19 infections in Europe
• Powerful reflation…..
• Vaccines, yes, but treatment?
