Stocks Drop As Virus Spreads, Brexit Talks Begin

Markets have kicked off the week in a depressed mood amid gloomy coronavirus developments. Brexit trade talks begin.

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Markets have kicked off the week in a depressed mood amid gloomy coronavirus developments, overshadowing vaccine developments and encouraging data from China. As the number of cases worldwide reaches 10 million and the death toll strikes 500,000, concerns over rising coronavirus cases and second wave fears continue to drive risk sentiment. California’s governor has ordered the immediate closure of all bars in 7 counties, with 8 other counties advised to implement similar closures. 

Here in the UK Leicester could the first city to go into local lockdown amid a spike in covid-19 cases. Concerns over a second wave and rising cases over shadowed news that Chinese factory’s returned to profit in May for the first time in 6 months, rising 6% yoy. China is also pushing ahead with a strong vaccine candidate Ad5-nCoV, which is offering some support to the otherwise downbeat mood.

The increase in coronavirus cases and questioning of reopening plans has dented momentum which has been driving markets. Investors are starting to question their blind optimism over the rebounding global economy. Whilst data is broadly outperforming, this is unlikely to continue if the easing of lockdown measures halts or slows dramatically amid surging cases.

Important Week On Data Front
This is an important week for data, with PMI’s, UK GDP and US payrolls as well as Federal Reserve Chair Jerome Powell speaking tomorrow. Whilst data is expected to show that the worst is behind us, a double dip recession could well be on the cards if lockdowns are widely re-imposed.
Whilst the US Dollar has often advanced when risk sentiment stutters and stocks fall, that hasn’t been the case this morning, the USD is trading off versus its major peers.

Pound Advances, Brexit Trade Talks Begin
USD weakness, in addition to Boris Johnson’s spending plans are helping the Pound pick up off monthly lows as the next round of post Brexit trade talks begin today. Pound traders will be watching the headlines carefully, any leaks of lack of progress could drag on demand for Sterling. Heading into the talks the EU is looking for compromise, whilst the UK is appearing less flexible as key issues such as fishing, EU judicial power and “the level playing field” remain contentious. Any hint of these being overcome could boost the Pound. Traders could also seek solace in silence ahead of update from EU chief negotiator Michel Barnier at the end of the week.

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