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.
IMF Downgrade
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.
DAX Chart
