Markets on the rise despite surging Covid cases

A French mandate to require masks indoor has helped lift the CAC today, although rising cases bring fears of further nationwide lockdowns. While the US enjoy the thanksgiving holiday, the dollar is on the rise in response to yesterday’s FOMC minutes.

• European markets enjoy positive day in absence of US volatility
• CAC outperformance highlight support for latest restrictions
• FOMC minutes signal potential for swifter tightening phase

European markets have enjoyed a relatively upbeat day today, with the lack of US involvement reducing volatility into the close. While rising Covid cases remain a key concern for mainland European economies, we have seen the likes of the DAX and CAC both gain ground. Just as many countries struggle to keep a lid on Covid cases, a new strain has emerged in South Africa to bring another potential concern for investors down the line. European Commission president Von der Leyen implored nations to step up vaccination efforts in the face of rising cases, with France the latest country to step up restrictions in a bid reduce the spread of the virus. While the French move to make mask wearing mandatory at indoor venues does highlight the risk posed by rising cases, the outperformance of the CAC provides a vote of confidence in a policy that many hope will help to stave off a wider lockdown. 

Yesterday’s FOMC minutes provided the basis for some monetary policy risk going forward, with a number of members citing elevated inflation levels as grounds for a swifter tightening phase. With traders weighing up the consequences of a swift withdrawal of monetary accommodation at the Fed, the dollar has once again taken centre stage on the FX front. With the core PCE inflation and initial jobless claims figures both reaching levels not seen in decades, it should come as no surprise to see the Fed starting to consider whether an asset purchase scheme is actually necessary right now.