Markets Can’t Avoid the Reality of a Dark Winter The closure of New York schools has brought home the heavy toll that the resurgent pandemic is likely to exact. (John Authers)

(…) people are fed up with hearing about the pandemic, and the worst outbreaks in the U.S are in the high plains states, far from media attention. But the evidence grows stronger that the next few months are going to exact a heavy toll, in human and economic terms, across the developed world. Daily deaths have just overtaken their peak from the wave that swept through the Sun Belt in the summer, to reach a six-month high. (…)

The following chart, produced by Longview Economics in London, compares each of the three waves from their base. The current wave is rising in a way quite unlike the other two. Not all of this is down to more testing. The proportion of tests that come back positive is steadily rising and is now back to a six-month high. (…)

Now a “benefits cliff” is looming. The following is from Win Thin, foreign exchange strategist and economist at Brown Brothers Harriman & Co.:

A recent paper by two prominent labor specialists is sounding the alarm.  They calculate that around 12 million Americans will lose their emergency unemployment benefits by year-end.  This will be a huge hit to income and spending, to put it mildly.  By our calculations, it will be even more.  Our number includes 9.4 million currently on Pandemic Unemployment Assistance and another 4.1 million on Pandemic Emergency Unemployment Compensation, totaling 13.5 million that will see their emergency benefits end next month.  Of note, the government did not let extended unemployment benefits from the Great Financial Crisis expire until the end of 2013.  And that loss of benefits affected 1.3 million, only a tenth of what we are about to see next month.

(…) Meanwhile, activity in the great western European capitals of Rome, Paris and Berlin is collapsing again in November, after what had been a much more vigorous recovery, as Longview Economics illustrates using Citymapper data (…).

From Bloomberg:

Yesterday the MTA, which runs the subway in NYC, said that in the absence of federal support, it could be forced to lay off over 9000 workers and reduce transit services by 40 to 50%. If this happens, it would represent a significant degradation of infrastructure in the city, hurting commerce and activity further — and potentially turning what should be a temporary crisis into one with lasting damage.

• “We have this big debate: Is it $2.2 trillion, $1.5 trillion? You’ve got to be kidding me,” Jamie Dimon said at a virtual NYT conference. “Just split the baby and move on.”

• Russia surpassed 2 million Covid-19 infections, pushing its hospital system to the brink. The country has the fifth-most cases globally after the U.S., Brazil, India and France and has so far steered clear of a full lockdown during the second wave of the pandemic.
• Tokyo is raising its virus alert to the highest level, following reports of record new daily cases.
• After faring much better than most other countries this year, Finland is now facing a rapid escalation of the pandemic, health authorities warned.
• South Australia began one of the world’s toughest lockdowns as the state tries to contain a cluster of infections, with even outdoor exercise and dog-walking banned.

RE: South Australia, ZeroHedge adds this:

Chief Health Officer Professor Nicola Spurrier explained that the reason for the recently imposed six-day lockdown is the fact that “this particular strain has had certain characteristics” she said.

The State of South Australia, which became home to this dramatic scene yesterday, is also bracing for the risk that this new strain could spread more quickly, in addition to being more deadly. Professor Spurrier said a typical generation, or stage, of the virus was only about three days. (…)

Oxford Study Confirms Astra Covid Shot’s Response in Elderly

The University of Oxford confirmed that the Covid-19 vaccine it’s developing with AstraZeneca Plc produced strong immune responses in older adults in an early study, with key findings from the last phase of tests expected in the coming weeks. (…)

“This is a very important step, because the big worry with any vaccine is that it doesn’t work so well in older people,” Richard Horton, The Lancet’s editor-in-chief, said in an interview with Bloomberg Television. The data is “another brick in the house that we’re trying to build for this vaccine.” (…)

The results of Oxford’s phase 2 study show that the vaccine is better tolerated in older people and produces a similar immune response in old and young adults. (…) Oxford expects final-stage efficacy results in the coming weeks. (…)

Coronavirus Surge Drives Down U.S. Consumer Confidence Morning Consult’s daily U.S. Index of Consumer Sentiment is down 2.13 points from the prior week. The drop in confidence this past week primarily reflects the increase in the spread of the coronavirus across the United States.

U.S. Housing Starts Improve Again During October

Housing starts rose 4.9% (14.2% y/y) in October to 1.530 million (SAAR) from 1.459 million in September, revised from 1.415 million. Despite the increase, starts remained 5.4% below their January peak of 1.617 million. The Action Economics Forecast Survey expected 1.450 million starts in October.

Starts of single-family homes rose 6.4% last month (29.4% y/y) to 1.179 million from an unrevised 1.108 million in September. The latest level was roughly two-thirds above the April low. Accompanying the increase in single-family starts was steadiness in multi-family starts at 351,000 (-18.2% y/y), revised from 307,000. Starts have been at that level for three months, down 44.1% from the peak this past January.

Building permits were unchanged at a little-revised 1.545 million (2.8% y/y). It remained the highest level of permits since March 2007. Permits to build single-family homes rose 0.6% (20.6% y/y) to 1.120 million following five months of strong increase. Permits to build multi-family homes eased 1.6% (-26.0% y/y) to 425,000 after falling 1.4% in September. (…)

Inflation rises faster than expected, but that won’t sway Bank of Canada

Statscan reported Wednesday that Canada’s consumer price index (CPI) rose a brisk 0.3 per cent, seasonally adjusted, in October from September – lifting the annual inflation rate to 0.7 per cent. It might not sound like much, but that matches the highest pace since the COVID-19 crisis began – and well above the 0.4-per-cent annual rate that economists had anticipated. (…)

The Bank of Canada’s three measures of core inflation – designed to cut through month-to-month distortions to see the underlying inflationary trend – averaged 1.8 per cent in October. That puts them within spitting distance of the bank’s inflation target of 2 per cent – and they’ve been closing the gap for three straight months. (…)

Statscan’s homeowners’ replacement cost index, which reflects new home prices, jumped 1.4 per cent in October from September – the biggest one-month rise since 1991. (…)

China Borrows at Negative Rates for the First Time Superlow interest rates in Europe helped China to sell its first negative-yielding debt, as it raised about $4.7 billion in a three-part deal in euros.

(…) The 5-year bonds were priced late Wednesday to yield negative 0.152%, while the 10- and 15-year securities were sold with positive yields of 0.318% and 0.664%, respectively. (…)

“People want more exposure to China,” Mr. Fischer said. “China’s financial markets are opening, but there is still a broad scarcity of the sovereign [debt] among investors. The story of China’s Covid turnaround and the resilience of its economy are also things people like.” (…) “China also wants to be less reliant on the U.S. and U.S. dollar markets,” he added. (…)

International bond-index compilers Bloomberg LP, FTSE Russell and JPMorgan Chase & Co. have all moved to add Chinese government debt in yuan to some key indexes. That has helped fuel international appetite for China’s domestically issued sovereign bonds. (…)

Norwegian Air Shuttle Files for Bankruptcy Protection The trans-Atlantic carrier pioneered the Europe-U.S. budget market, racking up debt—then the pandemic struck.

TECHNICALS WATCH

Courtesy of CMG Wealth:

• 13/34–Week EMA Trend:

• NDR Crowd Sentiment Poll: Excessive Optimism (S/T Bearish for Equities)

The current weekly sentiment reading is 69.2. It was 65.1 last week. The current regime is highlighted in yellow.

NDR measured 92 incidences of Crowd Sentiment extremes since 1996. There have been 92 extremes since 1996. The crowd was right just one time and wrong 91 times. Had one followed the crowd at the time at those extremes, one would have lost over 12,000 S&P 500 points (according to NDR).  The last Extreme Pessimistic was reached on December 24, 2018 and the last Extreme Optimistic was reached in early April 2019.

It is important to note, the most attractive Extreme Pessimism buy signals have historically occurred with readings below 47.  The most attractive sell signals have historically occurred with readings above 70. Call them super extreme “extremes.”  These are the most important levels I am keeping my eye on when it comes to investor sentiment.

• NDR Daily Trading Sentiment Composite: Excessive Optimism (S/T Bearish for Equities)

Current daily sentiment reading is 74.44. It was 64.44 last week.

Buying opportunities occur at “Extreme Pessimism” readings below 41.5.  Selling/trading opportunities occur at “Extreme Optimism” readings above 62.5.

Note: The most attractive buying opportunities have historically occurred with readings below 25 (faded red arrow).  While the strongest sell signals have occurred with readings above 75.