Market Overview

22 June 2020

A Record Jump in Global Viral Cases Pressed Markets

The World Health Organisation (WHO) reported a total of 180,874 new official infection cases worldwide, based on the results from Friday, June 19, which is the absolute daily record since the beginning of the pandemic. The next day, another 156,922 detected cases were added, which could also be a record by previous standards if Friday's data is excluded.

The most frustrating statistics were seen in U.S. nationwide figures, as they exceeded 33,000 cases two days in a row. This was the highest spike observed since May 1, meaning the new infection peak since the country started to lift the restrictive measures. And more than 4,000 cases in Florida has not only marked a new absolute record in this state, where famous resorts and beaches are located, but, alas, also confirmed the upward trend for the whole previous week. A new, though slightly higher peak was recorded on Sunday in California too. Brazil, the world’s No. 2 viral hot spot after the United States, officially passed 50,000 coronavirus deaths, a blow for a country already combatting more than one million cases, with rising economic instability.

No wonder, the markets were disturbed. The U.S. S&P500 broad market index futures opened with a sharp decline in the early hours of Monday, immediately reaching the session's bottom point below 3040 points. However, it has not gone further than that for now. A week earlier, the market correction was much more powerful, and the bottom for the S&P500 was more than 100 points lower on June 15. So, the "buy dips" principle is still relevant.

Some relief came from the data at the middle of the Asian trading session. The number of cases in the U.S. dropped to 26,079 from the previous day, which roughly corresponds to the older peaks of May. Globally, statistical data also fell below the average figures of June showing 130,382 new cases by the end of June 21. Since the U.S. index futures managed to win back a significant part of their initial losses by the beginning of the Old World morning, the European stocks did not have enough time to sink at the opening, and they even grew over the next few hours.

Markets are still warmed by two important logical ratiocination chains. One logical chain is tied to the general understanding that the U.S. authorities are still not going to close the economy to quarantine anymore. So, there will not be a second lockdown as some increase in infections was quite predictable and even probably inevitable because of  street protests and more human contact upon the re-opening of the economy. At the same time, the business models of transnational companies traded on the American and European stock exchanges are still very effective and promising, while many equity assets are undervalued compared to their previous top-prices. The corona crisis is severe, but not permanent, so most investors adhere to a quasi "V-shape" model of slow recovery of markets and the economy, just like in 2008-2011.

Another rational kernel is germinating in a soil of major central banks oaths to give as much economy bailout packages as necessary, and to continue with zero interest rates plus bond-buying ultra-dovish monetary policy until pre-crisis job and growth targets are once again achieved. Last week, the Bank of Japan, the Bank of England, the European Central Bank and the Swiss National Bank, confirmed their commitment to this approach, and the market community has long been confident that the U.S. Federal Reserve will continue to flood the world economy and the financial system with money, enlarging its balance sheet.

Some temporary problem is the lack of a clear solution from EU leaders on a 750 billion Euros recovery corona fund. They failed again to make a decision last Friday, but such a frustrating result was widely expected given the persisting opposition of several northern European governments to the plan to pay out the majority of this stimulus in grants instead of loans. “We still think the frugal four [Sweden, Denmark, Austria and the Netherlands] will eventually bend in compromise, but with some compromises with budget rebates etc,” said analysts at Danske Bank in a research note.

Taking into account that both the current market mood still periodically buys emerging local bottoms, and the sideway behaviour of the S&P 500 index over the past two weeks - as it traded at similar levels to early June - may possibly confirmation that signals may emerge from the fresh June fundamentals. The closest useful information of this kind would be a set of business activity indices, including manufacturing, service, and composite Purchasing Managers Indexes (PMI) that are going to be released on Tuesday in Eurozone countries, as well as in the United Kingdom and in the United States. So, the best way to keep up is probably just to keep a finger on the economic pulse to see market reactions on each PMI data portion, which will begin  in the early morning hours in Europe tomorrow.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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