29.10.202011:21 Forex Analysis & Reviews: US and Europe stocks collapse due to concerns amid COVID-19, Asia-Pacific exchanges are falling in pursuit

US stock indices continued their negative dynamics on Wednesday and by the end of the week may break the record at the end of March this year. The reason for this is the active spread of the COVID-19 infection, undermining investor confidence in the recovery of the global economy.

Exchange Rates 29.10.2020 analysis

The Dow Jones Industrial Average fell by 943.24 points (3.4%) and reached 26519.95 points, demonstrating the largest drop since mid-June. The index has been declining for the fourth straight session.

The S&P 500 fell 119.65 points (3.5%), stopping at 3271.03 points and closing the third session in a row with a decline. The index fell by more than 8.0% and broke the record of early September, its gain since the beginning of the year is about 1.3%.

Finally, the Nasdaq Composite declined 426.48 points (3.7%), stopping at 11004.87 points. The growth of the index compared with the beginning of 2020 decreased to 22.7%.

Facebook, Twitter, and Alphabet were down more than 5.0% after executives attended Congressional hearings on their role in shaping public opinion on various issues.

It should be noted that the negative dynamics is by no means pointlike - this week the markets are simultaneously declining due to a number of uncertainties.

The growing cases of coronavirus infection could lead to increased quarantine measures in the US and Europe, which will undoubtedly hit the fragile economic recovery. The statistics of the Department of Health interfere with tune in to positive dynamics. On Wednesday, the daily number of coronavirus cases in the US already exceeded 70,000, many states continue to report an uncontrolled increase in infections. A deteriorating situation is also observed in Europe. Germany announced on Wednesday the introduction of partial quarantine for a month in order to contain the spread of COVID-19. In France, the self-isolation regime will take effect starting October 30 to December 1.

Of course, all this did not reflect positive dynamics in the world markets. Indeed, a month ago, investors mainly talked about the fact that quarantine measures would be limited and targeted, so they would not have such a strong impact on the economy. October, however, completely debunked this myth and, it seems, to threaten to hit the markets with serious consequences of large-scale quarantine measures.

Experts predict that, in the event of new restrictive measures, the US will freeze business activity in tourism, leisure, and catering. The strict quarantine will also affect the economies of European countries dependent on tourism, primarily Spain and Italy.

Many investors, having assessed the situation with the coronavirus in various regions of the world, are participating in the sale on the US stock exchange with the rebalancing of investment portfolios. Market participants are looking to withdraw funds from US stocks, confident that the Asian economy is recovering faster, and are more successful in controlling the impact of the second wave of COVID-19.

The upcoming presidential elections in the US also play an important role in their decisions. Investors worry that a long count of mailed newsletters will lead to uncertainty in the markets after November 3.

Historically, the ambiguity surrounding the change of the presidential administration each time leads to another sale on the US stock exchanges. In November 2020, the situation is aggravated by concerns about delays in the announcement of the election results and the unexpected victory of Donald Trump, in which case the continuation of trade wars can be expected.

Throughout the fall, investors hoped that negotiations between the White House and Democrats on a new package of financial incentive would end in a compromise before the elections, which would significantly help the country's economic recovery. However, these hopes are fading day by day, and even the most ardent optimists are not sure that the parties will reach an agreement before November 3.

Any alertness in investor sentiment is immediately reflected by uncertainty in the markets. Thus, General Electric shares rose 4.5% after the unexpected report of the company on profit in the 3rd quarter. Automatic Data Processing was up more than 6.2% and its earnings also increased.

At the same time, Microsoft shares fell 5.0%, despite the fact that the software giant reported an increase in sales. During the pandemic, the company noted a sharp increase in demand for video games and cloud services.

Experts say that investors 'expectations are too high and may lead to a decline in companies' shares. When companies fall short of market participants' expectations, their stocks react negatively. Profit expectations are unreasonably high today, and if corporations fail to meet them, investor responses will be unpredictable.

However, coronavirus remains the main cause of uncertainty in global markets. Analysts say investors will be able to focus on the longer-term following the announcement of an effective COVID-19 vaccine. Financial and shipping stocks, and with them the stock markets of emerging economies, will receive support after the risks of infection disappear.

Commodity markets also failed to maintain equilibrium on Thursday. The price of Brent crude oil fell 5.0% and stood at $39.12 per barrel.

The yield on America's 10-year bonds rose to 0.78% on Wednesday from 0.778% on Tuesday.

The ICE dollar index increased by 0.5% due to the excitement of investors amid tightening quarantine measures. More often than not, the dollar strengthens its position when investors sell shares, thanks to its status as a safe-haven asset.

The pan-European Stoxx Europe 600 fell 2.95% and hit its lowest since May this year.

There was also a tendency for investors to sell more risky European government bonds. Market participants fear that Europe will have problems with a new package of assistance measures if it is necessary to increase public spending against the background of quarantine.

Major stock indexes in the Asia-Pacific region (APR) seem to have followed the example of the leading markets in Europe and the US after a predominant decline on Thursday.

The Shanghai Composite index of the Shanghai Stock Exchange rose 0.08% and reached 3271.71 points, while the Shenzhen Composite index of the Shenzhen Stock Exchange fell 0.54% and stopped at around 2251.26 points.

The Hong Kong Hang Seng Index, on the other hand, fell 0.93% to 24478.84 points. South Korean KOSPI fell by 1.54% to 2309.11 points, Australian S&P / ASX 200 also lost 1.62% which sent it to 5959.6 points, and Japanese Nikkei 225 by 0.39%, and stopped at 23327.28 points.

Irina Maksimova,
Analytical expert
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