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Dow Futures Gain, Market Volatility Spikes On COVID Spread Concern, Pre-Election Risk

Wall Street will try to recover from its biggest single-day decline in more than a month Tuesday, with markets focused on a batch of blue-chip earnings and the ongoing surge in new coronavirus infections.

The Tuesday Market Minute

  • Global stocks extend declines as investors continue to retreat from risk markets amid rising coronavirus infections in the U.S. and Western Europe.
  • Record new infections trigger lockdown reports in Germany, while hospitalization rates in the U.S. are running at a two-week high.
  • The VIX index rises to the highest level since September 3 as markets prepare for next week's election and the potential for a contested result as polls narrow in key battleground staes.
  • Oil prices edge higher as Hurricane Zeta bears down on the Gulf coast and drillers pull workers from installations around the region.
  • Wall Street futures suggest a firmer open following mixed earnings from Pfizer, Caterpillar, 3M, Eli Lilly and Merck and ahead of durable goods data at 8:30 am Eastern time.

U.S. equity futures bumped higher Tuesday, following the biggest one-day decline on Wall Street in more than a month, as investors continue to track a surge in coronavirus infection rates and pull back from risk markets in the final trading days prior to next week's elections. 

Last night's 650 point decline for the Dow Jones Industrial Average highlighted a global retreat in risk appetite as new COVID infections hit record daily highs in both the United States and western Europe, bringing concurrent increases in hospitalization rates and calls for fresh restrictions on business and travel.

Those concerns were set against a backdrop of rising political risks at home, where President Donald Trump and his Democratic rival, former Vice President Joe Biden, are putting in their final campaign efforts ahead of next week's vote, with polls showing a consistent Biden lead but improving support in battleground states for the incumbent President. 

Election night uncertainty -- as well as the prospect of a contested result -- has also lifted the CBOE's key volatility gauge, the VIX index, to 32.23 points, its highest level since September 3.

Near-term stimulus is also unlikely, as well, given that the Senate has adjourned until at least November 9 following last night's vote to confirm Justice Amy Coney Barrett to the Supreme Court. 

Tuesday's action, however, is likely to be dominated by a series of blue-chip earnings both before and after the opening bell, with third quarter updates from Pfizer  (PFE) , Caterpillar  (CAT) , 3M Co.  (MMM) , Eli Lilly & Co.  (LLY) , Merck & Co  (MRK)  and Microsoft  (MSFT)

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Refinitiv data suggests third-quarter earnings will fall 16.7% from last year to a share-weighted total of 287.8 billion, before contracting by around 12.4% over the final three months of the year. So far, however, with 135 companies reporting, 83.7% have beaten Street forecasts, well ahead of the typical pace of around 70%.

Futures contracts tied to the Dow suggest a 10 point opening bell gain, while those linked to the S&P 500 indicate the benchmark will claw back around 5 of the 64 points it lost in yesterday's wipeout.

Bond and currency market moves, however, continue to suggest a cautious start to the session, with benchmark 10-year Treasury note yields slipping to 0.799% and the U.S. dollar index -- which typically moves in the opposite direction of stocks -- rising 0.03% against its global peers to 93.065.

European stocks were also in the red again Tuesday, despite some surprising quarterly numbers from oil major BP and banking giant HSBC, as investors looked to reports suggesting German Chancellor Angela Merkel will institute a 'lockdown light' for Europe's biggest economy that could see the closure of bars, restaurants and public events in order to slow the spread of the coronavirus.

The Stoxx 600 index, the region's broadest measure of share prices, was marked 0.33% lower in the opening hours of  trading, paced by a 0.88% decline for the CAC-40 in Paris and a 0.15% dip for London's FTSE 100.

Asia stocks, too, slipped lower in a session that was largely a reaction to last night's sell-off on Wall Street, with the region-wide MSCI ex-Japan benchmark falling 0.26% into the close of trading and Tokyo's Nikkei 225 ending the session little-changed at 23,485.80 points.

Global oil prices, however, edged modestly higher following Monday's sell-off, with traders citing the impact of Hurricane Zeta, which is gathering pace near key oil installations in the Gulf of Mexico, on domestic U.S. output in the coming days.

WTI contracts for December delivery, the new U.S. benchmark, traded 14 cents higher from their Monday close in New York and were changing hands at $38.70 per barrel in early European dealing while Brent contracts for December, the global benchmark, were seen 14 cents higher at $40.60 per barrel.