Pharmaceutical companies are making meaningful progress towards developing a successful vaccine but according to the markets, it's just not fast enough. If we are lucky, a vaccine will be approved before the end of this year but broad dissemination won’t happen until 2021. In the meantime new virus cases are rising at alarmingly rapid rates across the globe, causing panic for investors worried about a double-dip recession. Stocks sold off for the second day in a row as 10-year Treasury yields dropped 8%. The US dollar sold off against the euro, the Japanese Yen, and the Swiss Franc. Europe is headed for contraction in the fourth quarter and the fear in US markets is that America will follow.

It could only be a matter of days before daily new virus cases top 200,000 in the US. Even if Moderna, who says they will be releasing data over the next few days shares good results, the ongoing outbreak could strain the hospital system making it difficult to provide ventilators and other treatments that limit death rates. States are left with the hard choice of letting cases multiply or control the virus with new restrictions. Many have opted for the latter including Chicago which issued a 30 day stay at home advisory and asked residents to cancel Thanksgiving gatherings. Detroit canceled in person learning and New York ordered restaurants, bars, and gyms to close at 10 pm and limited gatherings to 10 people. All of these measures have negative consequences for the economy and unfortunately, tougher restrictions across more states are expected.

For all of these reasons, it's no surprise to see risk aversion return. Consumer prices also stagnated in the month of October instead of rising 0.1% like economists anticipated. Federal Reserve Chairman Powell said Congress and the Fed will need to do more. Investors didn’t like the White House’s decision to step back from stimulus talks and President Trump’s plans for an executive order that would ban Americans from buying or selling stocks of certain Chinese firms. We expect risk aversion to persist with further losses for USD/JPY and other high beta currencies.

Surprisingly, the euro was one of the only currencies to outperform the US dollar. Despite significantly weaker German industrial production, the ongoing virus outbreak, and German Chancellor Merkel’s warning that restrictions could be extended into December, the single currency has been remarkably resilient. Anti-dollar flows is the only explanation because the outlook for the Eurozone is grim. On November 2nd, all entertainment facilities, restaurants, and bars were ordered to close except for takeaway, large events were canceled and a work from home advisory was issued. In France, hospitalizations are higher than their peak in April with one person being admitted to the hospital every 30 seconds due to COVID. If this trend does not improve, they may have to take further measures, all of which are disasters for the euro.

Yet the worst performing currency on Thursday was sterling. This decline is not surprising considering that the UK is on lockdown as well, Brexit talks are going nowhere and third-quarter GDP and UK industrial production numbers were weaker than expected. One week into the lockdown, daily new virus cases rose to its highest level ever. It typically takes 2 to 3 weeks for restrictions to have a meaningful impact on case numbers. Next week we’ll get a better sense of whether the UK government needs to take further action. All three commodity currencies also succumbed to selling with the Australian dollar leading the slide on the back of Chinese-Australian trade tensions.