The daily rise in Covid-19 cases has retreated from all-time highs in Europe, thus responding to restrictive measures. Based on the positive start of European equities on Monday the latest round of lockdowns has largely been priced in and the next logical step for the market is to focus on potential government support measures (not yet announced).

Goldman Sachs cut growth forecasts for the European economy giving an initial estimate of the cost of the lockdowns. Based on the gloomy numbers of the report, positive growth in 4Q is an unlikely scenario - GDP in annual terms is expected to shrink by 2.3%. According to the previous forecast, the economy could grow by 2.2%.

The forecast for UK GDP growth was also lowered from positive 3.6% in 4Q YoY to negative 2.4%. Note, that's not taking into account the soft lockdown announced on Sunday.

GS also believes that one month long lockdown won’t be enough to stifle growth of the virus cases and proceeds in its forecasts from the assumption that lockdowns will last for three months.

Looking for positive signs in the current environment, it is worth noting that the second wave is generally localized. Asia has kept the virus largely under control while daily cases in the US retreated from the absolute record. It is still difficult to tell if the US has avoided the worst outcome (renewal of all-time peaks) and I think it is premature to do so as winter welcomes the peak of respiratory diseases. Looking at the data, figures for the Chinese economy were encouraging, indicating the continued strong economic momentum in October. Manufacturing / non-manufacturing PMI from Caixin / official remained above 50 points and extended growth. Non-manufacturing PMI remains at a fairly high level of > 56 points.

This week's calendar is jam-packed. US election results are due accompanied by the Fed meeting and the report on the US labor market. The latter 2 events are of secondary importance. The focus is on how Republicans and Democrats will split control in the Senate and House as the size and speed of approval of fiscal stimulus will depend on this.

The main risk for the markets, which increases the likelihood of lingering correction, are delayed voting results and a “weak” victory of the leader (that is, by a small margin). This could lead the loser to contest voting results. This outcome will mostly probably result in delayed fiscal deal as well.

Today's rise in stocks in Europe, as well as bullish momentum in US futures look more like a relief rally rather than the beginning of a full-fledged growth, since the uncertainty has hardly been resolved since last week. It is unclear how long the lockdown will last in Europe and what the outcome of the presidential race will be. In my opinion, the final “leg” of the correction has not yet formed, therefore, it is premature to bet on growth.