Acceptance stage, US GDP and ECB meeting

29 oct. 2020

Judging by what happened in the financial markets yesterday, the stage of acceptance is finally coming. All those fairly logical and obvious things that we have mentioned over the past weeks and which have been so stubbornly ignored by financial markets are beginning to be realized in prices.

Rise of the Japanese yen, a drop in US Treasury yields, an increase in the Fear Index, a fall in stock markets, a selloff in commodity markets - literally no matter what metric you look at, it becomes clear that the markets no longer have the strength to ignore the obvious.

The pandemic is gaining momentum, countries are closing with all that it implies. The funny thing is that all this had already happened this spring. It's amazing how short memory markets are.

The last hope for buyers of risky assets is today's data on US GDP. The numbers promise to be the best ever recorded, which in theory could inspire optimists. We remain in the camp of realists who know how to calculate 2 + 2 and understand that after falling by 31%, an increase of 31% will not return the indicator to the starting point.

Another hope, perhaps, is the earnings season. Apple, Amazon, Alphabet and Facebook are reporting today. These companies generally benefit from the pandemic rather than lose, their financial performance can help maintain the illusion of a bright present and an optimistic future. However, it is more than wrong to take their results at face value, that is, in the context of the market as a whole.

Another important event of today will be the announcement of the ECB meeting results. The most likely outcome will be concerns about the uncertainty surrounding the pandemic, as well as guidance on further actions in December. In any case, the ECB is unlikely to bring support for the euro.