Following yesterday’s late rally on Wall Street, European markets traded higher in the first half of Tuesday’s session and US index futures pointed to a firmer open. Sentiment remains cagey however and I wouldn’t be surprised if the selling resumes later today or in the week.
Following yesterday’s late rally on Wall Street, European markets traded higher in the first half of Tuesday’s session and US index futures pointed to a firmer open. Sentiment remains cagey however and I wouldn’t be surprised if the selling resumes later today or in the week.
On the one hand, there is optimism because of the gradual reopening of economies. California is set to start loosening its lockdown, introduced to stop the spread of Covid-19 disease, on Friday, while in Europe, many nations are actively unwinding their curbs. This partially explains why oil prices have been going up over the past several days, as some investors expect demand to slowly recover.
On the other hand, however, incoming macro data continue to reveal that the damage from Covid-19 is worse than expected, reducing the likelihood we will see a v-shaped economic recovery when the lockdown measures are mostly lifted. Indeed, unemployment in Spain surged again in April by 283,000 while UK car registrations slumped to their lowest since 1946. There is also the risk that the virus could start spreading again when things start to go back towards normal again.
This begs the question whether the big rebound on Wall Street we saw last month can be sustained. I certainly think that at the very best the markets may be able to hang around their recent highs, but there is a
greater risk for a second dip.
Meanwhile, there is the additional risk that the US-China trade talks could collapse amid the controversy over the coronavirus outbreak.
Furthermore, there is a growing rift between Germany and the European Central Bank over its vast asset purchases programme. Today, Germany’s top court ruled that the purchases are not backed by European treaties, and ordered Bundesbank to no longer participate in the programme and sell its holdings IF the ECB fails to satisfy the court’s demands for an explanation within 3 month as to how the purchases are proportional.
