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European indices slump 2% with new lockdown restrictions

EUR/GBP – 4hr Candlesticks
Source: GKFX / MT4 (October 16, 2020)

EUR/GBP is consolidating in a falling wedge pattern after having made a sharp move higher in September. Using the height of the initial move as a breakout objective would see price target 0.95.
 

TAKEAWAYS


•    European stocks tank 2% as counties tighten lockdowns
•    Wall Street finishes well off lows in volatile trading 
•    EUR/USD breaks down below 1.17
•    Q3 Earnings: Bank of NY Mellon 
•    DAY AHEAD: Eurozone CPI, US Retail Sales, US industrial production
 

GURU WISDOM


You get recession, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets. – Peter Lynch
 

MARKETS


France instituting a state of emergency after a big rise in hospitalisations and the UK government downgrading London to a tier 2 lockdown spurred fresh selling in European stocks. Travel and leisure shares were worst hit on the setback to reopening plans. Airline shares dropped as United Airlines reported a big loss and Ryanair announced it would run at 40% winter flight capacity.

Hong Kong led the losses in Asia with the Hang Seng dropping 2%. Wall Street suffered the same fate early on but reclaimed the losses in a late rebound, helped by a recovery in oil prices. Bank stocks recouped some losses from earlier in the week after Morgan Stanley topped estimates. 

The dollar gained as a haven as the euro and pound fell in reaction to the tighter COVID restrictions in the UK and France. Its noteworthy that Germany has so far resisted tighter restrictions despite its highest rise in daily cases since the start of the pandemic. Stricter nationwide efforts in Germany could act as a fresh bearish influence on the euro. Deteriorating optimism over a EU/UK trade deal added to the losses on the first day of the EU Summit.

Gold and silver prices rose in the face of a rising dollar as investors started to think about new stimulus measures from central banks. The ECB’s Lagarde said on Thursday the central bank could do more. Oil prices rebounded from an early slump after a bigger than expected draw in US inventories.  
 

Tech scrutiny


Tech stocks led losses on Wall Street amid the generally softer market mood. But bigger issues could be on the horizon. This week Twitter and Facebook blocked an article about Joe Biden’s son from the New York Post newspaper – and received a quick rebuke from President Trump and Republicans. At the same time, France and the Netherlands urged a tougher approach from EU competition regulators who are already drawing up new rules for regulating online platforms.

 

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