Second Wave Fears Hit Risk Sentiment

Investors are waking up to the threat of a second wave and the damage that it could cause to the global economic recovery

Downtrend 1

Asian markets moved lower overnight and European bourses are pointing to a weaker start, as fears of a second wave of coronavirus infections drag on risk sentiment. As the number of covid-19 cases in Beijing jump and the US reports 25,000 new cases a day, investors are waking up to the threat of a second wave and the damage that it could cause to the global economic recovery.

24 US states, including the likes of Texas, and California are reporting a rise in cases. Some states such as Florida and Arizona are reporting a record rise in cases as the lockdown measures are eased. This weekend China closed the largest wholesale food market in Beijing and placed the surrounding neighbourhood in lockdown following 50 new cases in the capital. 

These statistics are making investors acknowledge the high probabilities of a second wave of infections. The global economic recovery is very fragile, the overriding fear is that a second lockdown would mean additional economic paralyses and more dire economic consequences, pouring cold water over any hopes of a quick recovery.
The reality is that without a vaccine a full recovery is unlikely. Drawing comparisons with the Spanish Flu, a century earlier, the flu returned for four waves, infecting a third of the world’s population before eventually petering out. Whilst a second wave will be easier to manage given policy experience, volatility in the markers could well be with us for a while yet.

Chinese data disappoints
Data from China has done little to revive risk sentiment. Chinese industrial production rose 4.4% in May yoy, falling short of expectations of 5%. Retail sales fell -2.8% adding to signs that domestic demand in the world’s second largest economy remains weak.

FTSE lower even as shops re-open
Despite a move higher on Friday, US and European stocks lost ground across the previous week. Risk aversion means investors are selling out of riskier assets such as stocks, at the start of the week. The FTSE, which plunged over 5% in the previous week is looking to extend those loses by around 1% even as shops reopen today for the first time in almost 3 months and data shows house prices ticked higher in June thanks to pent up demand from across the lockdown period.
Traditional safe haven gold rallied 2.6% across the previous week, its best weekly gain in 10 weeks are investors are once again turning cautious. Gold is consolidating those gains around $1725, falling away from the overnight high of $1734. 

Looking ahead
There are plenty of tests for the markets this week, with Powell testifying before Congress, the BoE rate decision and the European Union summit, in addition to a barrage of data including UK labour market figures, inflation and retail sales. A positive spin by Jerome Powell after last week’s warnings could overshadow second wave fears.

Oil tumbles
Oil is down 4% at the star of the week, extending losses of 8.3% from the previous week. The rebound in oil is starting to look shaky as fears mount over a second wave of covid-19 infections hitting demand for fuel. The recovery in oil was going to be a drawn-out move, fears of a second wave will mean that any recovery in oil demand will be even longer than initially thought. An OPEC meeting on Thursday to discuss ongoing cuts and compliance with cuts will keep oil on traders’ radar. 


More from FTSE 100


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.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital 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), GAIN Capital Singapore 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 GAIN Capital Singapore 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 GAIN Capital Singapore 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.

GAIN Capital Singapore 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 for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.