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CAC40 breaks down with French lockdowns

CAC 40 – Daily Candlesticks
Source: GKFX / MT4 (October 28, 2020)

CAC 40 broke down out of a falling channel pattern to a 5-month low, gapping below the September 25 low.
 

TAKEAWAYS


•    France and Germany announce second lockdown
•    DAX30 index drops over 4%, CAC40 slides -3.7%
•    Dow, S&P, Nasdaq all slide 3.5%
•    Oil price dumps 5% to three week low
•    DAY AHEAD: BOJ, US GDP, Apple, Amazon, Alphabet, Facebook earnings
 

GURU WISDOM


“It is my conclusion that the successful investor must have patience to wait for the right moment, courage to buy or sell when the time arrives, and liquid capital.” – Benjamin Roth
 

MARKETS


It was another day of heavy selling across global stock markets over fears that new COVID-19 lockdowns in Europe would bring about a double dip recession and hit corporate earnings once again. France and Germany were in the crossfire after both countries announced a second lockdown. France did so after markets closed; meaning French stocks could come under further pressure. 


Wall Street closed heavily in the red with the S&P 500 having its worst daily drop since June. During the first wave lockdown policies started in Europe before moving to the United States.  The fear is that there will be a repeat for the second wave. Adding to virus fears is the election. Given that pre-election stimulus looks unlikely, there is a concern that Donald Trump as a ‘lame duck’ President after a Biden win would be less inclined to find a deal with Democrats.  

The US dollar gained against most major currencies – most notably growth-sensitive currencies like the Aussie dollar and the British pound. GBP/USD dropped below 1.30. When markets are under duress, investors tend to move into cash, which in a dollar reserve system is typically dollars. 

That dollar strength pulled gold and silver prices to the lowest in a month. The metals prices had withstood falling stock prices for three days but cannot fend off a rising dollar too. The price of oil dived 5% after a surprise build in US inventories. The losses might have been greater were it not Hurricane Zeta which has forced the shutdown of oil rigs in the Gulf Coast.
 

FAAA Earnings


Big tech is reporting on Thursday with Apple, Amazon, Alphabet and Facebook all announcing results after the market close. Tech stocks were among the biggest decliners on Wednesday, not because of earnings but because investors are taking profits after a long winning streak in the sector since March. 
 

Lockdown 2.0


With other countries like the UK and Spain having already put large swathes of the country into lockdown, the new measure in France and Germany mean most of the continent in back into lockdown. The resulting shutdown in economic activity- which had not recovered fully from the first lockdown could be even more destructive for the economy and for corporate profits.
 

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