Risk Appetite Continues to Build on Positive COVID-19 News. Have the Markets Turned the Corner?

Risk appetite is on the rise for a 2^nd consecutive day, following last Friday’s pullback.

Driving the markets is the expectation of a gradual but relatively rapid end to lockdown measures across the EU, the U.S, and beyond.

In all reality, there is certainly reason to feel buoyant. In terms of timeline, COVID-19 has seemingly been tamed within a similar time-frame to SARS, but with far more catastrophic consequences.

It took some time for governments beyond the borders of China to fully grasp the risks and governments have paid a high price.

From the perspective of the global financial markets, the volatility has also been unprecedented.

Economic data has also delivered record lows. In spite of this, investors remained resilient and continue to cling onto the hope of a swift rebound in economic growth.

Positive over Negative

There have been few instances in recent weeks to talk of anything positive for the markets to cling onto…

UK Prime Minister Johnson returned to the office this week. In spite of being admitted to ICU, the British PM was back at the desk in just a matter of weeks.

Moving across to the EU, Italy began easing lockdown measures alongside Spain, Germany, and France.

Then shifting across the Pond, even U.S states hit by COVID-19, including New York, are opening up.

Just 2-weeks ago, this would have perhaps been unthinkable when considering the number of new cases each day.

Seasonal factors may well have contributed to the shift in the potency of the virus. There has been, however, a path of destruction across the world…

At the time of writing, the number of coronavirus cases stood at 3,075,538.

Unlike SARS, but not as lethal as MERS, the reported mortality rate stands at 6.9%. Some nations, simply due to demographics, have seen mortality rates exceed 10%. These include Britain, France, Italy, and Spain… In contrast, the U.S has reported a 5% mortality rate, with Germany even lower at 3.8%.

So, with governments easing lockdown measures that is the good news for the markets to digest. We’ve seen a continued downtrend in new coronavirus cases across the major economies to also support risk appetite.

From a positive perspective, however, there is probably little else for the markets left to consider…

The Next Area of Focus…

While there is plenty of support for riskier assets, however, there are downside risks that remain in play.

First and foremost is a slow resumption of business as usual across the world’s most affected economies.

I continue to discuss the issue of border control. We have been seeing reports of a pickup in new cases as a result of people returning home.

Expanding this to tourism and business travel and there is a material risk of a 2^nd wave.

The medical profession seems unconvinced that a 2^nd wave is avoidable. This means that vaccination is needed for a full return to business as usual.

Listening to the WHO and more, a vaccination this year is optimistic. In contrast to SARS and MERS, however, there is a global effort to find a vaccine, simply due to the havoc wreaked globally.

If the markets have it right, then updates on progress towards effective treatment and fewer COVID-19 cases will continue to support.

From an economic perspective, however, the numbers will also need to do the talking…

That includes a jump in hiring and a surge in consumer spending…

For the more bullish, the lockdown was a relatively short one from a time frame perspective. Will that be enough?

As the markets brush aside 1^st quarter and April stats, it’s going to be a different story when it comes to May and June numbers…

Once more, there is a lot hinged on hope, with little regard to the worst-case scenario…

Volatility? Well, while the VIX may be back at sub-40, it is far too early to write off fear all-together.

Look out for a Dollar surge if the markets have got this one wrong… And then there is the EU project and the EUR…

At the time of writing, the EUR was up by 0.44% to $1.08755.