Risk Appetite Weaken Over New COVID Strain

Global equities benchmarks have seen a reversal in sentiment this week with most indices under selling pressure. Following the vaccine-driven optimism of recent weeks which had fuelled a strong rally in risk markets, traders have been taking profits on long positions amidst a resurgence in COVID fears.

The sell-off comes in reaction to news of a new strain of the virus which has been found predominantly in the UK but has now also been found in more than five other countries. The new “super strain” of COVID is thought to be up to 70% more transmissible than the original virus and there are fears of a further global outbreak which could lead to a return to the sort of global lockdown seen over Q1 this year.

News of a US fiscal package, agreed by the Senate this week, has helped to underpin US equities to an extent. The government has agreed a deal which includes $600 billion in direct support and $300 billion in unemployment support. While the figure is lower than the first round of stimulus, at this stage, any level of support is being welcomed.

In the UK, the FTSE has been under heavy selling pressure over border chaos between the UK and France. With France having closed its borders over fears of the new virus strain, over 1000 lorries have been waiting at the UK border causing massive delays to supply chains. Macron is demanding that all drivers be tested before entering France. With the UK and the EU yet to agree a Brexit deal on trade there are fears that this is a sign of things to come and UK assets have come under heavy selling consequently.

Technical Views

DAX

Following a gap lower at the start of the week, which saw price reversing lower from the 13744.79 level, the DAX pierced below the 13322.69 level, but has since moved back above. While price can hold above here, the outlook remains skewed towards further upside.

S&P500

The S&P has seen a volatile week of trading so far with price reversing from the 3714.50 level to test the 3586 level support. While price holds above here, the outlook remains for an eventual break higher in line with the longer term bullish trend.

FTSE

Following two week of consolidation above the 6518.2 level, the FTSE slipped back below the level this week with price reversing to lows of 6317.4. While price remains below the 6518.4 level, there are risks of a move down to the next support at 6123.3.

NIKKEI

The Nikkei continues to hold within the 26213.4 – 264949.5 range. The market has tested both sides of the range this week and while the bias remains tilted towards further upside, risks of a deeper correction are growing.

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