The number of new COVID-19 cases across the globe has exceeded 5 million.
How the situation is evolving in the European Union?
Aside from Spain, which has had 1 blip of over 1,000, we’ve seen the most adversely affected see sub-1,000 new cases each day for 9 consecutive days. The most affected being France, Germany, Italy, and Spain.
We had some concerns over how quickly governments were easing lockdown measures. When we factor in the 2-week incubation period, these numbers are fairly positive. They should give the markets some hope that a 2nd wave can be avoided.
Governments are about a 4-5 day period and about a week out to convince the more pessimistic…
If we look at China as a base case that should also be supportive.
We can then also look at virus vaccine news that has also been market positive late last week and early this week.
It appears that the coronavirus crisis continues to hit the global economy dramatically.
In the meantime, are there any improvements?
From the economic data, shifting through May and June numbers, the focus remains on employment and business and consumer confidence figures.
In Germany this week, we saw both business and consumer confidence improve, coming off the back the easing of lockdown measures.
The key, however, remains labor market conditions, which need to materially improve to drive confidence and consumption.
Expect these to be the key areas of focus and to drive the market near-term.
A pickup in consumption would drive a service sector recovery that would then filter through to the manufacturing sector.
Despite positive forecasts, the US-China conflict continues to be in the spotlight. Also, the Chinese government introduced a new HK Securities Law.
How did these events affect the markets?
There was some skepticism over the phase 1 trade agreement. We then saw accusations fly over the cause of the coronavirus pandemic leading to a deterioration in relations.
China has responded with the HK Securities Law and the U.S government is expected to respond in kind this week. This could include sanctions.
The markets have been almost Teflon in the early part of the week. On Wednesday morning, however, we saw risk appetite tested, as focus shifted back to the U.S – China tensions.
This shift in focus came as Trump announced that the U.S will respond to China’s plans for HK.
Let’s see what happens there. Beijing is not going to sit back this time around, not after the year-and-a-half that it took to come up with a phase 1 trade agreement.
Risk appetite will be tested. We do have COVID-19 news to keep the markets buoyed and there is also vaccine talk to provide support.
U.S China tensions, that relationship isn’t going to improve any time soon. Could you imagine a China-Russia alliance against the U.S and anyone else who wants to jump on Trump’s bandwagon?
That would certainly give the markets a rough time, particularly with Iran there in the Middle East as well.
It seems like the US-China tensions do not influence the markets significantly.
Meanwhile, is there anything else notable in regards to commodities and geopolitics?
Other than COVID-19, vaccines, and U.S China relations, there’s very little else to consider from a global financial market perspective.
There is one thing to consider, however, looking further down the track. Will the markets be as optimistic about the economic recovery once June stats begin to come out.
We saw May’s economic indicators show economic activity pickup from the depths of the abyss in April figures.
If we see June numbers fall off from May, then that optimism will come into question. May would have seen a larger pickup just due to the fact that economies were reopening.
I’m not convinced that the global economy will recover as quickly as the markets suggest. When you look at the equity markets and the rebound in the Aussie Dollar and Loonie. These are quite big moves when considering the doom and gloom ahead.
So, let’s see what happens when we begin to see June numbers…
For a look at all of today’s economic events, check out our economic calendar.