April 20, 2024

Coronavirus resurgence remains the biggest threat

LQDFXperts Weekly Highlights: Coronavirus resurgence remains the biggest threat

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The pandemic course still causes concern to markets as the resurgence of coronavirus infections remains the biggest threat to world growth.

Coronavirus cases have now surpassed 30 million globally. The global economy may sputter for a while due to the resurgent pandemic, especially in Europe.

The threat of new lockdowns amid rising cases of the COVID-19 disease made investors anxious about the global recovery. Analysts fear growth and inflation could surprise on the downside in the coming year.

European countries announced new restrictions to curb a sharp resurgence in cases while Britain is considering a new national lockdown. A lack of material development on U.S. stimulus package is also an overhang.

Trump administration plan to ban WeChat and video-sharing app TikTok from U.S. app stores starting Sunday night heightened U.S.-China tensions. Trump decided to block Americans from the Chinese-owned platforms over national security concerns.

Upbeat Chinese data revived optimism around an economic rebound. China’s industrial output accelerated in eight months in August. Further, retail sales grew for the first time this year, beating analysts’ forecasts.

At the Bank of Japan policy meeting, the Bank of Japan pledged to maintain its ultra-accommodative monetary policy.

On Thursday the BoE said it was looking more closely at sub-zero rates in case economic woes deepen. Further, the Bank of England kept its main stimulus programmes on hold this week and said that Britain’s economy had performed better than expected. The British Central Bank added that it was ready to take further action.

The prospect of a chaotic end to the Brexit transition period in December if Britain fails to agree a trade deal with the European Union also continues.

LQDFXperts – Coronavirus resurgence remains the biggest threat

Investors have not shown any preference for either currency, leaving EUR/USD directionless over the past two weeks. This lack of activity could continue next week as well. Τhe dollar index registered its first weekly decline since August after two weeks of gains. Key for the dollar’s direction this week will be a slew of Fed speakers, and the central bank’s new approach to inflation. Currency strategists said the dollar weakness may signal more volatility ahead of the Nov. 3 U.S. elections.

GBP/USD rebounded last week, posting gains of close to 1.0%. Tensions over Brexit are again bubbling over as the EU and UK remain at odds over the post-Brexit trade relationship.  The prospect of a chaotic end to the Brexit transition period in December continues to weigh on the British pound.

USD/JPY broke below the 105 level for the first time since late July. In its past five sessions, the yen has gained 2% against the dollar. Stock markets tumbled and pushed investors to the perceived safety of the Japanese currency. Currency strategists expect the safe-haven yen to remain well bid. Sentiment towards the US dollar has increased which could translate into gains for USD/JPY this week.

For a second straight week, AUD/USD showed little movement. Investors have been bullish on the Aussie, despite the Covid-19 pandemic and its status as a risk currency.

USD/CAD took a pause last week and showed limited movement. The Covid-19 remains a serious headache for the US economy. With no major Canadian events on the schedule, it could be another quiet week for USD/CAD.

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Eurozone, UK and US PMIs at the forefront

Last week was quite busy, highlighted by central bank decisions and inflation data. The upcoming week will focus on PMIs.

Investors will also look ahead to a slew of U.S. Federal Reserve speakers this week. A decision on the inclusion of Chinese government bonds in a global index is also of interest.

Tokyo markets will be closed on Monday and Tuesday next week, meaning volumes will be thin in Asian trading. The Reserve Bank of New Zealand meets this week.

Investors will be looking ahead to flash PMI data on Wednesday (22.09) for the first hints of how economies have fared in August:

  • Eurozone PMIs: France, Germany, and the whole eurozone. In August, German and eurozone manufacturing PMIs pointed to very slight expansion. The French index came in at 49.8, just below the 50-level, which separates contraction from expansion. The Services PMIs for all three countries were in the low 50’s pointing to slight expansion. September releases will not change dramatically.
  • UK Flash Manufacturing PMI: The PMI has hovered just above the 55-level for the past two months. This is well above the 50-level, which separates contraction from expansion. A small decline is estimated.
  • UK Flash Services PMI: The index has rebounded in impressive fashion, with a reading of 60.1 in August. Back in April, the index came in at just 12,3, pointing to sharp contraction.
  • US Manufacturing PMI: The PMI has been showing slight expansion, with readings slightly above the 50 level, which separates contraction from expansion.
  • US Services PMI: The index pushed into expansion territory in August which is the first reading above 50 in seven months. The estimate for September is 54.5 points.

Follow this week’s economic calendar.

PLEASE NOTE The information above is not investment advice.