Europe Points Higher Covid Concerns Remain

Wall Street closed lower overnight, snapping a 4-day winning streak as coronavirus concerns dragged on sentiment and additional US fiscal stimulus looked even more elusive. European stocks are pointing to a mildly positive start on Wednesday, although any gains are expected to be limited as covid fears remain.

On Tuesday Johnson & Johnson announced that it as pausing its covid vaccine candidate vaccine trial owing to a participants’ unexplained illness. Eli Lilly & Co announced later on Tuesday that it too is pausing its clinical trial of its covid antibody treatment on safety concerns, sending US stocks sharply lower.

Whilst it is common to see pauses in vaccine trials, this boils down to the fact that at best it could take longer to get a vaccine rolled out and at worst the trials will be shelved. Either way you look at it, its not good news for risk sentiment in the markets.

That said, AstraZeneca quickly moved passed its pause in its trial, so the precedent is set for a rapid move forward past this speed bump. This is allowing Europe to at least attempt a move northward on Wednesday.

The IMF also upwardly revised its global economic growth outlook which is underpinning risk sentiment. The IMF now expect a -4.4% global economic contraction in 2020, up slightly from -4.9% forecast in June.

Local lockdowns & circuit breakers
However, with covid cases rising in the UK and on the old continent more localised lockdown will keep risk sentiment in check. The UK is even considering a two-week circuit breaker lockdown in the coming weeks. Let’s not forget that we are only in Autumn, meaning that this could be a very long winter as governments struggle to get control of the spread of the virus. Needless to say that these measures could quickly derail the already very fragile economic recovery.

Brexit in focus
Brexit talks will be in focus as the 15th October deadline draws into focus and it appears that very little progress has been made between the EU and the UK. British PM Boris Johnson is set to meet with EC President Ursula von der Leyen in attempt to inject some urgency and political momentum into the talks before Boris Johnson potentially walks away from talks tomorrow.

More US banks earnings
US Earning season kicked off with a bang with north JPMorgan and Citibank managing to impress. Bank of America, Goldman Sachs and Wells Fargo will be in focus today

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