Key Points from This Week
Second Wave Fears Intensify
Fears of a fresh outbreak of COVID-19 created a drag on risk sentiment this week. Investors are fearing the potential return of lockdown measures over coming months following reports of renewed increases in the infection rate in the US and China. With travel restrictions due to lift in coming weeks as the easing of lockdown measures continues, fears are growing that the virus will see a dramatic increase which could lead to countries needing to reinstate social and economic restrictions which created a huge loss of activity over recent months.
UK & European Manufacturing Improves Again
Manufacturing PMIs provided further evidence of the growing recovery in the UK and Eurozone. The factory sector was seen to have recovered further over the last month, with the UK reading returning to growth for the first time since the pandemic struck. With lockdown measures continuing to ease, activity has been picking up across the board and investors have been encourage to see a steady increase in these readings with the Eurozone PMI expected to return to growth over this month also.
US Data Strengthens
US data has been broadly positive this week. While the manufacturing PMI missed expectations, it still recorded a firm recovery from the prior month’s reading. Durable goods then came in well above expectations at 15.8%, marking a solid recovery from the prior month’s -17.7% reading, providing further evidence of the ongoing recovery with employment and retail sales both having improved strongly over the last month also.
Lagarde Warns Over Recovery
ECB president Lagarde had a sobering message for markets this week as she warned that the recovery, both domestic and global, will be a complicated matter. Lagarde highlighted the severe uncertainty in the outlook and the risks of a second wave of the virus which are complicating the bank’s forecast but did note that the current recovery will likely be incomplete and possibly transformational.
Key Events Next Week
US Labour Reports
The next set of US labour reports are due next week. Following the record print in May which saw a 2.5 million increase in jobs, traders will be keen to see whether the recovery continues at such a strong pace over the last month or if it has now tempered. A further reading of such high level would be a big boost for risk appetite at this point.
Traders will be watching the Chinese manufacturing reading next week for further insight into the health of the recovery there. Following an initial strong rebound in March, the last two readings have moved back closer towards the 50 level and should next week’s release show the factory sector having fallen back under the level, this could create headwinds for risk appetite. Similarly, a strong reading will be supportive of risk appetite here.
Keep An Eye On
With lockdown measures continuing to lift in various parts of the world, including the scaling up of airline services, the risks of a second wave of the virus are growing. With this in mind, traders will be paying close attention to incoming data regarding infection numbers and the death toll. Should US stats continue to rise this will likely create further selling pressure in risk assets while a a reduction in numbers will see risk appetite bolstered.
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