Who Needs China? Optimism and Hope Continue to Drive Riskier Assets NorthwardsThe markets continue to move northwards. Who needs geopolitical risk, when you have hope? The big question must be whether it can continue…
Onwards and upwards the global equity markets go and the commodity currencies are joining in on the rally.
Just 6-weeks ago, the Aussie Dollar was down at sub-$0.60 levels against the Greenback.
When considering the quite dire economic environment and the grim outlook, the broad-based recovery has been a remarkable one.
The bigger question that needs to be answered, however, is whether the latest breakout is sustainable.
The Here and Now
As we have moved beyond the 1st quarter and April economic indicators, the markets have formed a clear view.
May’s private sector PMIs suggested that the economic meltdown had bottomed out in April. Consumer confidence and business confidence figures have also shown that sentiment has picked up.
There’s one clear issue with the current sentiment, however.
While the U.S and China go back at it and the global supply chain remains broken, central banks and governments will be looking for a consumer-driven economic rebound.
In fact, when the news wires report of small firms leaving stimulus monies untapped, there must be some concern over what lies ahead.
At a minimum, there needs to be a marked bounce back in labor market conditions. That then needs to translate into consumption to fuel the merry-go-round.
The Good News
While there is so much uncertainty, the good news is that new coronavirus cases continue to head downwards. In key economies at least, with Asia and the EU impressing.
It is particularly poignant when considering the fact that we are now reaching that 2-week time-lapse since governments began introducing their lockdown measures, however.
At a minimum, this trend must continue in the next 1-2 weeks and with it, a successful treatment or vaccine.
Only then can the services sector truly expect a marked shift in outlook.
The Bad News
Trump could turn on China and the EU at any time and the China ball has already started rolling.
Throw in the EU, talk of a conflict with Iran and even the U.S severing ties with the Saudis and the geopolitical landscape may change forever.
As we have seen in the past, the markets don’t do too well to change. Just look at the effects of Brexit on the UK economy and the Pound.
So, for Trump there is the hope that, while the U.S economy may have seen its worst quarter since the Great Depression, the U.S equity markets continue to line voter pockets…
Today’s Market Moves
Today, we saw optimism overshadow U.S – China tensions and a gloomy economic outlook once again.
This may well continue should we see progress being made towards a COVID-19 vaccine or treatment drug.
Near-term, however, we will need to begin considering June figures to assess the speed of the economic recovery.
Today’s consumer confidence figures may be positive from a risk perspective. This is assuming that U.S consumer confidence does rise in spite of quite dire weekly jobless claims figures.
That leaves the markets exposed to a market shock, once we begin to digest June numbers…
Let’s face it, it would be almost a dream for labor market conditions, private sector activity, consumer consumption to bounce back to the end of 2019 levels…
At the time of writing, the EUR was up by 0.60% to $1.09603. Assuming that governments and central banks continue to throw money where it’s needed, we could even see $1.13 levels.
For the Aussie Dollar and Kiwi Dollar, we could see even greater gains…
It is a long way to fall though should that optimism shift in June, however.