15th June 2020 - The fear of second contamination wave dominates the market sentiment

Walid Salah Eldin

Active member
The risk aversion mood which could contain the market sentiment last week is still looking reasonable to the market participants, as the fear of a second contamination wave is still existing amid the protestations in US which is opening its economy with daily basis deaths number above 500.

The EU economy is still trying to restart also, but it needs to be isolated for considerable period of time to slow the next waves and not to repeat the scenario of the first wave which can be followed by other lower highs waves, before having a social immunity can be reached within nearly 2 years, if there is no effective medicine or vaccine to come to end this nightmare.

China shocked also the world by seizing 11 districts in Beijing, after detecting 57 infected case, while the major economies are still vulnerable to lots of downside risks and geopolitical concerns.

While The US economy is still looking also ahead of a second wave of contagion, amid the current persisting protestations which may hold, till the next presidential election.

As there is no easing signs yet Specially following this new aggressive incident in Atlanta which has been read widely, as a violent unneeded reaction from another white policeman against another black man showing to the public there is really need to change in US.

In this same time, Trump is looking more astray and hesitating than before, as his departure became looking a solution for bringing back calmness to the streets and getting back to business, with no more problems can be spurred by his existence.

Many republicans are afraid now of losing everything by adopting his policies in dealing with the crisis which came after massive drop of the labor market.

Some republicans Icons are willing now to let him down more than before such as The former presidents George W. Bush, beside many other fired members from Trump's own selected administration.

While the Dems are gathering momentum without even doing anything, but their being as the only available solution.

They are not even in need to get use of the situation by making greater roles to black supporters such as Michelle Obama which has popularity now more than her husband.

Trump's leaving could mean a lot to the markets which can understand this as an end of US trade wars and returning to many of the pacts the US has left since Trump took his office!

The US equities are not yet priced on that possibility which can grow up next sending their prices higher and raising the hopes for retrieving the economic ascending pace during Obama's era following the credit crisis.

As expected the FOMC members last week assured in their released economic assessment following their meeting on the Fed's readiness to support the economy further, if it is to needed.

The committee was impressed by the improving of the labor market in May, but it refrained from pushing the hopes higher preferring to highlight again the current downside risks which can drive the economy to shrink by 6.5% this year, before easing later letting the economy to expand again by 5% next year and by 3.5% in 2022.

The committee decided to keep the Fed fund rate unchanged unanimously between zero and 0.25%, as widely expected as it has been since lowering it by 1.5% last March, when it decided also to encourage the banks to keep their discount window opened as wide as it possible by removing the RRR to provides financing access using all of their available capital and liquidity to lend the household sector and spur business investment.

In response to the crisis, the Fed managed to widen also its balance sheet initially by USD2.3tr driving it to surpass in May USD7tr level before reaching USD7.165tr in the beginning week of this month to the support the small businesses and lower the cost of lending to the government which could pass until now USD3tr reflation plan to revive the economy which has been already waiting for more financial stimulus plans to come, following the US presidential elections in case of Trump's winning as he promised, before this current sparked crisis by Covid-19.

The US economy has already got boosts by several reflation plans valued more than USD1.5tr during Trump's era which watched also threats to the global economy because of his trade wars and that drove the Fed to lower the Fed fund rate three times by 0.25% in the period from Jul. 31 to Oct. 31.

He and who can be in his place can really find it harder to support the economy by more funds at these current debt levels near USD26tr, after US Debt to GDP ratio reached new high at the end of 2019 by rising to %106.9, amid warnings from the Fed, before this current crisis which can make the ratio grow to unsustainable levels hurting the US creditability.

The Asian equities struggled in the beginning of this new week, amid increasing worries about the Covid-19 impacts, while US S&P 500 future rate is fighting now to have footing close to 2950, after limited rebound last Friday to 3087.20.

The worries about the global economic recovery weighed down also on the oil prices in the beginning of the new week, after they have been already aggregately exposed to profit taken, following their rally which started last Apr.21 and continued to this Jun. 7.

Have a good day

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
En mi opinión, la Revolución Tecnológica ha creado nuevas necesidades que están teniendo un impacto muy directo en el mercado laboral, como resultado de la transformación digital de las empresas y los desafíos de la nueva era global.
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