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U.S States Hit Pause on Reopening. This is Bad News All Round…

By:
Bob Mason
Published: Jun 26, 2020, 12:58 UTC

News spreads of fresh spikes in new COVID-19 cases, leading to a pause in reopening. This is bad news for the U.S economic recovery and the labor markets.

Money world

The Inevitable

News hit the wires at the end of the week of a number of U.S states hitting pause on reopening plans.

There had been a clear message from the U.S administration that the reopening must continue at whatever cost, including loss of life…

Trump’s message was followed to the T and the devastation has been clear for both the markets and voters to see.

Sadly, there is no distraction tactic that the administration can adopt to conceal a harsh reality.

Looking at the news hitting the wires over the day, there is a far gloomier picture for the markets to consider…

According to CNN, there was a record single-day 37,077 jump in new coronavirus cases reported in the U.S on Thursday. The number is actually a conservative one. We have 45,503 new cases reported, taking the total number of cases to 2,504,676.

That is the highest increase since a 45,566 spike back on Friday, 24th April.

It’s therefore not surprising that a number of U.S states have hit pause on reopening plans. The safety of American citizens must be of greater importance than an economic reboot…

Economic Implications

This week’s PMI numbers from the U.S and elsewhere pointed to a speedier economic recovery than initially anticipated.

While a number of central banks delivered optimism, FED Chair Powell and the FED was somewhat more cautious.

As far as the FED Chair was concerned, it is all about the COVID-19 numbers and little else near-term.

The FED has continued to deliver support and, when considering the pause on reopening, more support may be on the cards.

Weekly jobless claims figures failed to fall to sub-1m levels, let alone sub-300k levels. This pause on reopening could have two quite dire implications for the U.S labor market and economic recovery.

Firstly, businesses will be far more cautious 2nd time around, which means rehiring at a snail’s pace, at best.

Secondly, and perhaps more significantly, will be consumer sentiment. We have seen consumer confidence pick up of late. This latest curveball may well test the resilience of consumers.

It may not be so quick to recover from another pullback in consumption…

Economic Data and the Market Reaction

At the time of writing, the Dow mini was down by 131 points, as the markets began to respond to the news.

The loss is minor when considering some of the most populous states in the U.S reporting record highs in new cases on Thursday. These include California, Florida, and Texas.

According to CNN, these three states account for 27.4% of the 328m people living in the U.S.

Worse yet, for an economy looking to rebound, are the age brackets affected. The latest reports reveal that 18 to 44 years olds are being affected at a high rate.

Inevitably, this will translate into a pullback in private sector activity, assuming that the upward trend continues.  Then there is the likely higher rate of infections as a result of a more mobile age group being infected.

Will it mean a nationwide lockdown? It may be a bitter pill for the U.S administration to swallow. If it is an eventual outcome then even the FED may not be able to prop up the markets.

At some point, the FED will need to let the markets just recalibrate. It will be a costly experience for a central bank that just jumped into the U.S corporate bond market…

The Greenback

At the time of writing, the Greenback was down by just 0.05% to 97.382, with the commodity currencies also seeing a limited downside.

The Aussie Dollar was down by 0.15% to $0.6877, with the Loonie down by 0.12% to C$1.3654.

If the spread widens, expect far more significant moves to come. The markets will need to get past the noise and consider the near-term to medium-term implications.

Looking at crude oil prices, WTI’s 0.93% fall to 38.36 is also a minor fall…

Expect the news wires and COVID-19 to now be at the forefront of market drivers. How the U.S government responds will also be key and passing the buck is not going to be palatable…

If we see the 2nd wave accelerate across the country, will the Greenback remain the safe haven of choice?

As long as the FED continues to assure its support and ensure liquidity, then yes and that could really hurt the Dollar bears…

What may ultimately be more alarming, however, is the actual number of infections and related deaths…

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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