Covid concerns cause equity weakness

Contained in Europe so far

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Concerns about new, potentially more deadly strains of the coronavirus hit European stock markets at the start of the weak, with the FTSE sliding by almost 1% and the Dax and CAC both down by over 1.5%. For now at least, the S&P 500 managed to rally, perhaps reflecting hopes that sharply reduced travel will prevent any more serious strains from spreading. With their higher propensity of “value” firms, hopes were high that the European indices would do better this year, but that hasn’t worked so far.

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Macro

The Dallas Fed manufacturing index provided more evidence that the ISM manufacturing gauge is likely to fall in January.

The German Ifo has continued to weaken.

Manufacturers are more confident in Turkey, perhaps due to the sharp fall in the lira last year.

Markets

The Asian indices continue to do well, with the Hang Seng rising by over 2% yesterday.

The low level of the put/call ratio could mean the US indices are vulnerable to a correction.

The VIX rose yesterday as traders got a bit more nervous, by remains lower than its highs last week.

The stock market divergence was also reflected in inflation-linked swaps, which rose in the US but fell in Europe.

There were few signs of jitters in the FX market, though, with the DXY little changed.

Meanwhile, an unusual divergence between ethereum and bitcoin has occurred in the past week.

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