The pandemic remained the key driver for market moves yesterday. US economic data was mixed (durable goods orders, Conference Board consumer confidence) but are against the backdrop of the deteriorating coronacurves outdated. European equities added another percent to the decline at the start of the week. Wall Street finished mixed with the DJI (-0.8%) and S&P500 (-0.30%) losing but the tech-heavy Nasdaq eking out a small 0.64% gain amid big merger news. Core bonds rallied. German yields fell 1.7 bps (2-yr) to more than 3 bps (10-yr and 30-yr), the biggest drop in a month as Europe turned into the Covid-19 epicenter once again. The 10-yr yield finished 3.5 bps lower at key support near -0.614% (61.8 Fibonacci retracement from March low-high). The US yield curve also bull flattened with yields changes varying from -0.4 bps in the 2-yr to -4 bps in the 10-yr. The latter (0.7676%) effectively re-entered the sideways 0.55-0.80% trading range as markets mull the escalation of the virus in the US along with fiscal stimulus not due at least until after the elections. The dollar traded choppy during European dealings. EUR/USD eventually closed just south of 1.18 (down from 1.181), mainly on the back of a weaker euro. USD/JPY turned south in classic risk-off dynamics, ending at 104.42 (from 104.84). The trade-weighted dollar managed a modest comeback north of 93. Sterling held a wait-and-see bias for most of the day as Brexit talks continue, hovering around EUR/GBP 0.907 opening levels. Euro softness eventually send EUR/GBP lower to 0.904.

Asian-Pacific equities again outperform both Europe and the US with moves ranging from modest losses of -0.5% (India) to nice gains up to +2.7% (South-Korea). European futures are again slumping almost 1.5% (US -0.5%). Markets are pandemic-based differentiating as most Asian countries have the virus more or less under control. EUR/USD is slightly extending yesterday's losses at open but has traded stable near 1.1785 since. USD/JPY slips further towards 104.24, coming close to support at 104. Core bonds trade near yesterday's closing highs.

We can skip today's economic calendar. More pandemic-related restrictions are being announced each day as countries continue to report record tallies in cases while the death toll pace is picking up as well. Belgium announced a closure of all sport and culture infrastructure in the Flemish region. France reportedly mulls a one-month lockdown (see below). Germany shuts bars and restaurants for one month. We expect the coronavirus to continue to weigh on sentiment. European stocks are prone for further declines also from a technical point of view (break below September low). Falling below the lower bound of the downward trend channel, as suggested by the futures markets, would raise the alarm. The S&P500 in the US risks giving way to the pre-Covid-19 closing high at 3386. Core bonds could extend gains in current circumstances. The dollar fails to convince. EUR/USD could edge lower within the upward trend channel but that's more likely to be euro weakness rather than dollar strength. Supports kicks in at 1.174 followed by 1.1696. UK and EU trade talks are scheduled to end today. Unless material progress is announced, we assume EUR/GBP 0.90 to act as solid support.

News Headlines

Australian headline (1.6% Q/Q & 0.7% Y/Y) and core (0.4% Q/Q & 1.2% Y/Y)) inflation both rose slightly more than expected in Q3. They remain below the RBA's 2%-3% inflation target and details showed only a partial recovery from Q2 price declines. Higher oil prices and the reversal of temporary policy support measures caused most of the action. Today's CPI print is unlikely to alter the RBA's expected policy easing next week (Nov 3). AUD/USD rises from 0.7110 to 0.7150 this morning, but that has probably more to do with an easing of national lockdown measures.

BFM reports that French President Macron will introduce a new one-month lockdown tonight. The country yesterday saw the highest death toll from the coronavirus (+523; totaling 35541) since April 22. French cases are rising exponentially with hospitalizations expected to match the wave one peak within the next two weeks.

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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