A globally accelerating spike in new COVID-19 infections, which can be marked as a second wave, becomes a new theme for markets and whether this may prompt to fresh lockdowns.
The resurgence in coronavirus cases unnerved investors who were hoping for a swift economic recovery from the crisis.
The World Health Organization (WHO) reported a record increase in global coronavirus cases on Sunday renewing pandemic fears. With the total rising by 183,020 in a 24-hour period, the total global coronavirus cases are now over 8.8 million.
The rate of spread of the virus in Germany rose the possibility of renewed restrictions on activity in Europe’s largest economy. Fresh wide lockdowns are probably unlikely, but local restrictions have been re-imposed in Beijing, Australia’s Victoria state and other countries worldwide.
Divisions among European Union leaders over how to structure the planned COVID-19 recovery fund kept investors wary. E.U. leaders agreed on Friday that urgent action was needed to haul their coronavirus-hit economies from the deepest recession since WWII. But they made no progress on a massive stimulus plan that has divided them for weeks.
Sweden, Denmark, Austria and the Netherlands say the allocation of money not sufficiently linked to the pandemic.
Little progress has been made in Britain – E.U. trade discussions. British Prime Minister told visiting French President on Thursday that talks on a post-Brexit deal cannot drag on into the autumn. German Chancellor also said the EU and Britain needed to reach a deal by the autumn. Britain left the EU on Jan. 31 but talks on future relations have not made a significant progress so far.
START TRADINGLQDFXperts – Spike in new COVID-19 cases upset markets
Renewed worries about a spike in new coronavirus infections send investors into safer assets.
EUR/USD posted small losses for a second successive week. The world’s reserve currency gained 0.54% this week against a basket of currencies, its best performance since mid-May. Further, Dollar short positions increased in the week to June 16th, according to weekly futures data. This indicated broader market optimism about an economic recovery. Gains in the euro are possible if Purchasing Managers Index (PMI) data due on Tuesday beats expectations.
GBP/USD posted sharp losses for a second straight week, dropping 1.5%. Sterling had its worst week since mid-May after fresh data on Friday showed government borrowing had hit record highs. The British currency is down 6.8% this year and GBP/USD will have difficulty turning the downtrend around. Further, the Bank of England expanded its quantitative easing program, from GBP 645 billion to 745 billion. The BoE dampened expectations for negative rates and slowed the pace of quantitative easing.
USD/YEN took a break from its recent volatility, posting small gains last week. The Bank of Japan maintained monetary settings at its policy meeting, as policymakers are hopeful that a global recovery is slowly underway.
AUD/USD made a push for the 70 level but was unable to consolidate and ended the week unchanged. The Australian dollar has been kept in tight ranges for a week. The RBA released the minutes of its June policy meeting where policymakers maintained the cash rate at 0.25%. All in all, the Aussie has performed well in Q2.
The Canadian dollar is up 3.1% against the U.S. dollar in the second quarter. The USD/CAD pair remained unchanged last week. Canadian domestic data was consistent with an economy regaining some ground in May after an April freefall.
The week ahead – All eyes are on the U.S. GDP report
A week full of PMIs is coming but investors focus is on the U.S. GDP Report with analysts bracing for a sharp 5% decline.
- On Monday (22.06) Germany’s central bank publishes its latest economic assessment. The Bundesbank may see some recovery, following the easing of some lockdown rules.
- Besides Tuesday’s (23.06) PMI data, investors will also be looking to U.S. consumer sentiment figures out later the same day. The figures may show if encouraging signs of recovery from May can be sustained. Manufacturing, services and composite PMI data for June concern Australia, Japan, France, Germany, Britain, the United States and the euro zone.
- On Wednesday (24.06) investors expect the release of German Ifo Business Climate survey. After falling to 74.3 in April, business confidence rebounded in May, with a reading of 79.5. The estimate for June stands at 85.0 points.
- On Thursday (25.06) analysts are braced for a sharp drop in Q1 GDP, with an estimate of -5.0%. This is reflective of the damage to the economy due to Covid-19. If the actual read beats the forecast, the dollar could escape without significant losses.
- On the same day US Employment claims are onto the centre stage once more. Jobless claims will probably continue falling, with an estimate of 1.3 million. The numbers have been extremely high, but are a far cry from April, when two weekly releases were above the 6-million mark.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, BBC, The Guardian