Mid-Week Themes – COVID-19, Economic Data, Brexit, and U.S Election ChatterAfter a quiet start to the week, there is plenty for the markets to consider. Economic data, COVID-19, geopolitics, and monetary policy are in focus.
The coronavirus pandemic continues to be in the spotlight as it affects our everyday life and global economic growth heavily.
What is the current situation with the COVID-19?
There has been plenty of bad news on the COVID-19 front. There’s been California, where they have had to reintroduce containment measures. We have seen spikes all over the place including the most populous states of the U.S. This will all have an impact on the economic recovery. So, it now all depends on for how long these containment measures are kept in place. An extended period would materially affect service sector activity.
Then there is progress towards an effective vaccine. We’ve had plenty of positive updates in the week.
Whether a vaccine will be widely available before another economic meltdown, that’s the race that is on at the moment.
As we can see from the macroeconomic data releases, economies across the globe started to recover slightly.
Let us discuss the upcoming economic data releases.
After a quiet start to the week, Thursday is a big day on the economic data front. Out of China, there are 2nd quarter GDP figures due out along with industrial production, retail sales, and fixed asset investments.
The markets will get their first set of 2nd quarter GDP numbers and June retail sales figures. These will give some idea of what economic recovery to expect elsewhere.
From the U.S, we’ve also got Philly FED Manufacturing number for July, June retail sales, and industrial production figures. There are also the weekly jobless claims figures to consider.
Unemployment figures for May and June’s Claimant Count from the UK will also garner plenty of interest.
There is ultimately plenty for the markets to consider in the 2nd half of the week. We also have U.S consumer sentiment numbers for July to consider at the end of the week. Has there been any impact from the latest spike in new COVID-19 cases that could hurt sentiment and spending?
It appears that central banks around the globe continue to take action and implement ground-breaking monetary policies to support the economies during the coronavirus crisis.
What should we expect in terms of central banks and their actions?
On the monetary policy front, we’ve got the BoC in action on Wednesday. Following some pretty decent employment figures for June last week, the BoC should have some breathing space.
They will have to continue to reassure the markets that there is more left in the tank should the need arise. That spike in new COVID-19 cases in the U.S and other geographies will be of concern.
The ECB is also in action. We’ve got discord in the ranks. It’s not the first time that there has been discord. Draghi also had to face it quite frequently.
We’re not expecting too much, though Lagarde will have to toe the line and assure the markets that there is more to come.
In the meantime, another important topic that could continue to affect the markets is the UK withdrawal from the EU.
Is there anything noticeable on Brexit?
On the Brexit front, there’s been quite a significant shift since Theresa May and her failings. Johnson and negotiators are not just focusing on the EU. There is life beyond the EU and the British public voted believing just that.
Negotiating trade deals elsewhere, with the likes of Australia and the U.S, is putting pressure on the EU. If the UK decides to focus on building trade relationships beyond the EU, it puts the EU in a predicament.
Yes, the UK is dependent upon the EU, but the EU is also reliant upon the UK for trade. The shift in strategy is supporting the Pound near-term and preventing a major pullback.
At the end of the day, however, the markets will want some form of an agreement with the EU. It is a sizeable economy, after all, and not one to be brushed aside.
Progress is being made and fisheries and trade will remain the main area of focus.
Let us continue with politics.
Is there any news from the US?
On the geopolitical risk front, the U.S continues to try and rub China up the wrong way. Trump is lagging Joe Biden in the polls and the FT tracker has Biden with enough Electoral College votes to win with ease.
So, a COVID-19 vaccine couldn’t come quickly enough for the U.S President. The U.S equity markets are standing their ground but it may not be enough.
China will likely remain a target and it’s now about recognition of resources in the South China Sea. The U.S has stated they don’t recognize China’s claim, which has riled China. Then there’s HK and trade. Rising tensions suggest that a phase 2 trade agreement will remain elusive.
If Trump continues to trail Biden in the polls, China may even decide to walk away from the phase 1 agreement. Walking away from the agreement would deliver Trump with another failure ahead of the election…