Shift towards “risk off” with growing US-China tensions and the easing of lockdowns

Intermediate

Macroeconomic/ geopolitical developments

  • US-China tensions have increased this past week, with President Trump blaming China regarding the spread of the COVID-19 coronavirus and also with raised concerns regarding a possible resumption of trade conflicts.
  • The past week has seen European nations and some US States continue to ease lockdown restrictions and to restart their economies.
  • However, although the number of new cases and deaths from the COVID-19 coronavirus, continues to decline in many nations, there have been pockets of increases, notably in Germany, South Korea and in Wuhan.
  • Global macroeconomic data continues to significantly deteriorate, with the US Retail Sales report the standout last week, falling 16.4% with consensus around -12%.
US retail sales
  • The 118-year old department store chain JC Penney, who weathered the Great Depression filed for bankruptcy late last week.
JC Penney

Global financial market developments

  • The “risk on” theme was dealt a blow by the US-China tensions and the uptick in cases in some nations, where lockdown restrictions have been lifted.
  • The rebound rally in global stocks has stalled with major global averages now sending some negative technical analysis signals, shifting more towards a “risk off” phase.
  • Furthermore, safe haven assets are rising, with Gold and US Bonds higher (Bonds moving to lower yields).
gold chart
  • In the Forex markets, the US Dollar has rallied again as a safe haven, with the flight to quality.
  • In addition, the Euro and the Pound have been notable casualties of the “risk off” shift, whilst “commodity currencies” have also declined with the Australian, New Zealand and Canadian Dollars all down versus the US Dollar.
GBPUSD chart

Key this week

  • The number of cases and deaths from the COVID-19 virus, alongside updates on lockdown rules in Europe and the US will be watched closely.
  • Central Bank activity this coming week includes the Reserve Bank of Australian (RBA) Meeting Minutes on Tuesday, then the People’s Bank of China (PBoC) Interest Rate Decision and the Federal Open Market Committee (FOMC) Meeting Minutes, both on Wednesday.
  • We also hear from Federal Reserve Chairman Powell on Tuesday and again Thursday.
  • Macroeconomic data of note includes; Japanese Gross Domestic Product (GDP), the UK Employment report, the German ZEW Survey, global Markit Purchasing Managers Index (PMI) data, US Jobless Claims and UK Retail Sales.
DateKey Macroeconomic Events
18/05/20Japanese GDP
19/05/20RBA Meeting Minutes; UK Employment report, German ZEW Survey; Chairman Powell testifies
20/05/20PBoC Interest Rate Decision; FOMC Meeting Minutes
21/05/20Global Markit PMI data; US Jobless Claims; Chairman Powell speaks
22/05/20UK Retail Sales

Editor in chief

Steve Miley has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Editor-in...continued

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