France, Germany, and the UK announce lockdowns

Prior week summary

The major U.S. equity indices moved sharply lower last week, notching a second consecutive week of declines and marking the worst weekly performance since March, as rising COVID-19 cases in the U.S. and Europe coupled with news of renewed lockdowns in France, Germany, and the UK soured investor sentiment despite largely positive economic data updates. As of Sunday evening, the global tally for COVID-19 cases sits just under 47 million, with the U.S. accounting for approximately 20% of the reported cases. The pace of new cases and hospitalizations has continued to quicken across the globe with the U.S. reporting over 100,000 cases on Friday, setting a new world record for the number of cases reported by any country in one day. Friday marked the highest number of daily cases for 16 states, with 13 states also reporting record hospitalization levels.

In Europe, rising COVID-19 cases prompted France, Germany, and the UK to institute national lockdowns. On Wednesday, French President Emmanuel Macron announced that the country would begin a one-month nationwide lockdown that would see the closure of restaurants, bars, and non-essential businesses. In a televised address of the announcement, Macron cited the speed at which the virus was spreading as the reason for re-instituting the lockdown measures saying, “The virus is circulating at a speed that not even the most pessimistic forecasts had anticipated. We are all in the same position: overrun by a second wave which we know will be harder, more deadly than the first. I’ve decided that we need to return to the lockdown which halted the virus.” On Saturday, Prime Minister Boris Johnson announced a second national lockdown that will last for four weeks beginning on November 5. Speaking at a news conference after the announcement, Johnson said, “We will get through this, but we must act now to contain this autumn surge. We’re not going back to the full-scale lockdown of March and April. The measures I’ve outlined are less prohibitive, less restrictive, but I’m afraid from Thursday the basic message is the same: stay at home, protect the NHS, and save lives.” On a positive note, AstraZeneca announced on Monday that early data suggested that its prospective vaccine produced a robust immune response in both young and old adults, boosting hopes that the potential vaccine could receive regulatory approval by year-end.

Market participants were the beneficiaries of a deluge of economic data updates last week. The Bureau of Economic Analysis announced on Thursday that the U.S. economy expanded at an annual rate of 33.1% in the third quarter, modestly beating analyst expectations. The historic rebound in GDP was mostly attributed to record pickups in consumer spending and business investment, as well as trillions of dollars in government aid. Analysts warn that the U.S. economy will face serious headwinds in the coming quarter as the COVID-19 pandemic gains steam across the globe. The Atlanta Fed’s GDPNow tool, which forecasts the current quarter’s GDP in real-time, expects the U.S. economy to expand at a modest annual rate of 2.2% in the fourth quarter. Initial jobless claims fell to a seven-month low as 751,000 individuals filed for unemployment in the last week. Continuing claims also fell from 8.47 million to 7.76 million. While last week’s jobless claims mark the lowest claims level seen during the pandemic, the level of claims remains far above the pre-pandemic record set in 1982. Consumer spending rose for the fifth straight month in September rising 1.4%, above both analyst expectations and the 1% increase seen in August.

The look forward

Market participants are gearing up for another busy week of economic data releases with updates on the ISM Manufacturing Index, construction spending, factory orders, the ISM Non-Manufacturing Index, jobless claims, and the October non-farm payroll report, dotting the economic calendar. All eyes will turn to the presidential election on Tuesday when the nation decides between Donald Trump and Joseph Biden.

Rates snapshot

Market implied policy path (Overnight indexed swap rates)