Risk Off As Coronavirus Numbers Surge Knocking Economic Recovery Hopes

Risk off sentiment continues to grip global equities amid surging coronavirus cases, global trade tensions and a stark downgrade from the IMF to economic projections.

Charts (1)

Risk off sentiment continues to grip global equities for a second day amid surging coronavirus cases, global trade tensions and a stark downgrade from the IMF to economic projections. The safe haven trade is in full swing with riskier assets, such as equities and commodity currencies being sold off, whilst safe havens such as the US Dollar and Gold are pushing higher.

Gold has been a clear winner from this pandemic, pushing higher over the past three months. $1800 is moving into target.

The rise in cases in some states in the US is particularly unnerving with Florida, Oklahoma and South Carolina reporting a record number of cases. 7 other states also had record high numbers earlier in the week and Texas is considering localised lockdowns in an attempt to control its massive outbreak. The overriding fear for traders is that the surge in cases could derail the economic recovery.

These fears were heightened following the IMF’s warning that the decline in global growth will be worse than initially feared. The IMF now predicts an almost -5% decline in global growth this year, substantially worse than the -3% decline forecast just 10 weeks ago. The IMF highlighted the unprecedented hit to consumer spending and more economic scarring, with firms going out of business and people remaining unemployed for longer. The outlook made for grim reading and the reality check has hit confidence in the markets hard. 
Wall Street closed 2.5% lower, negativity spilled over into Asia, with stocks slumping and European bouses look to extend the heavy sell off from the previous session.

Trade woes - timing is everything
In addition to coronavirus concerns and as if the markets didn’t have enough on their plate, concerning signals on the trade front are unnerving investors. Trump has threatened tariffs on EU foods to the tune of $3.1 billion over the long running dispute on aircraft subsidies.

German consumer confidence 
Looking ahead there are several data points to focus on. German GFK consumer confidence is expected to show an improvement from -18.9 in June to -12 in July. This comes following yesterday’s German IFO business sentiment data which revealed that biggest increase in business sentiment or record, as businesses see light at the end of the coronavirus tunnel. The DAX still closed over 3% lower, underperforming its European peers. The Euro also settled in the red and continues on the back foot today.
The ECB will release minutes from the latest monetary policy meeting, which could offer support to both the Euro and broader sentiment.

US Triple data release
US jobless claims will be monitored closely. Initial jobless claims are expected to increase by 1.3 million, after 1.5 million claims last week. More than three months into the covid-19 crisis and millions of Americans are still unemployed. This will mark the 11th straight week of deceleration. Whilst 45 million Americans have filed for unemployment benefits over the past 13 weeks. Continuing claims are also only showing a very slow pace of re-hiring, declining to 19.6 million, from 20.5 million.

Whichever way you look at this the numbers are not great. Even if jobless claims produced an encouraging number, any optimism could be wiped out by rising coronavirus numbers.
The final GDP is expected to confirm 5% annualised contraction in the first quarter. Meanwhile US Durable goods orders are expected to rebound, following retail sales higher. 

More from DAX

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account