US Open – The Wobble Continues

New Cases Trigger Second Wave Concerns

It seems a combination of a new spike in COVID cases in Beijing and disappointing Chinese data is weighing on sentiment at the start of the week. The numbers are still very low in the Chinese capital but the risks are high which may explain the apprehension we’re seeing in the markets this morning.

I’m sure there’s probably also a strong element of positions being trimmed back after a strong run for stock markets. Moments like this can often reflect where the market is as much as the newsflow and maybe investors are just feeling a little uneasy about the prospects of a second wave on a market that has pretty much already fully recovered.

The data from China overnight doesn’t help matters and suggests the recovery isn’t quite as strong as hoped but let’s face it, the numbers aren’t having a great impact and without the spike in new cases and markets being where they are, we’d have probably seen a similar response this time around.

With central bank still pumping enormous amount of cash into markets, I have no doubt there’ll be appetite whenever we see dips like this. Obviously a few failures may test the resilience of the rally but as we’ve seen already, there’s a huge disconnect between markets and the economic reality, there’s little reason to think that’s about to change.

Oil recovers earlier declines on COVID case spike

Oil prices are falling alongside stock markets this morning, off around one percent after recovering most of their earlier losses. Natually reports of spikes in new cases in the US, China and Japan aren’t helpful for crude prices. Trump has vowed not to shutdown the economy again but if the second wave is anything like the first – if/when it arrives – I’m not sure he’ll have much of a choice. Oil prices will remain very sensitive to evolving COVID situation, despite the best efforts of producers around the world to rebalance the market.

Gold slips as dollar firms

Gold is off again this morning, falling around 1% as it once again fails to generate any upside momentum near the $1,750 level. The dollar has firmed in recent sessions, despite slipping a little today which may be contributing to the yellow metal’s failings but given that we’re seeing risk assets slipping today, it’s a little disappointing. Obviously the greenback represents a significant barrier for gold but it is gradually softening and the environment beside that is undoubtedly supportive.

Bitcoin tests $9,000

Bitcoin slipped below $9,000 briefly but has pared earlier losses already. It’s currently back above this level but looking increasingly vulnerable, particularly at a time when we’re seeing a bit of a wobble, as far as risk is concerned. The key level remains $8,000, although there are still a few support levels  before then. Below $9,000, $8,800 looks interesting followed by $8,500.

For a look at all of today’s economic events, check out our economic calendar.

Craig Erlam,Senior Currency Analyst at OANDA

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