European and US share markets indices fell 3% to 4% overnight as Germany and France headed towards renewed virus containment measures. The resurgence of Covid-19 is undermining the investor confidence that lifter share markets from their March lows. The risks are heightened as market face key data releases, central bank decisions, Brexit negotiations and the US election over the coming trading days.
The German chancellor overnight won agreement to take the country back into partial lockdown. France announced new restrictions after the European close. The moves make tonight’s announcement from the European Central Bank a focal point, and increases pressure for an even greater extension of the bank’s support program. Previous forecasts that the EBC will extend its stimulus program by 500 billion Euros means traders are now anticipating another “whatever it takes” approach.
The Bank of Japan will make its decision today, ahead of the Reserve Bank of Australia next Tuesday. Tonight brings the release of European GDP and inflation data. US GDP is forecast to rise 32% in the third quarter after the previous 31.4% drop. Any disappointment in these numbers may have a magnified market impact, given the current weakness.
Futures suggest a torrid start to Asia Pacific trading. Safe haven buying of the US dollar and Japanese yen is putting many regional currencies under pressure, and could add to the 1% to 1.5% drop in share indices overnight.