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


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.