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Yield Curve Steepens Despite Record US COVID Cases

Published 26/10/2020, 08:39
Updated 25/04/2018, 09:10

The day ahead will see the market reaction to record US coronavirus cases and German IFO data, US new home sales and earnings from Twilio.

Two consecutive days of cases over 83,000 – a new record in the United States is hurting market sentiment in the new week. Fortunately the death rate has been flat in the past few weeks but top scientists are warning they tend to lag cases by 2-weeks. A combination of flat COVID death rates, the avoidance of stay-home national lockdowns and the prospect of more government support is keeping a floor under markets.

The prospect of extra stimulus irrespective of who the next President is has pushed the yield spread between 5 and 30 year US treasuries to the widest in 4 years. Longer-dated debt is falling out of favour, leading to falling prices and higher yields in anticipation of all the extra borrowing to pay for stimulus. Meanwhile the Fed is holding short-term yields at very low levels. That Fed-effect goes out to 5-years.

MARKETS

1-week countdown to US Election Day.

US reports record number of COVID-19 cases.

Samsung (LON:0593xq) group chairman dies.

DAY AHEAD: Germany IFO, US new home sales.

WEEK AHEAD: China 5-year plan, tech earnings, US Q4 GDP.

Treasury 5-year – 30-year bond yield spread reaches 4-year high.

EUR/USD hits 7-week high.

GBP/USD falls Monday, testing 1.30 level.

Bitcoin holds $13k, Ethereum neat 7-week high.

Gold and silver lower for third day.

DAY AHEAD

German IFO (96 exp vs. 97.7 prev)

US new home sales (1.022M exp vs. 1.011M prev)

Twilio earnings (exp EPS -0.03, Revenue 407M)

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