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#1 04-10-2020 11:29:09

johnedward
Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 2910
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The growth of coronavirus cases is putting pressure on risky assets

The growth of coronavirus cases is putting pressure on risky assets


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Stock markets continued a decline last week after several consecutive weeks of declines in U.S. equities, which marked the longest series of weekly losses since last year. Traders are increasingly concerned about the momentum of the economic recovery, given the resurgence of virus cases around the world and the lack of progress on approval of the new U.S. stimulus package.

Although Donald Trump indicated his readiness to support a stimulus bill last week, the empty Supreme Court seat left by the death of Ginsburg may complicate matters. The struggle between the president and the Democrats over whether the vacant seat should be allocated now or wait until after the November presidential election is over is expected to create more delays and allow for common ground for a new tax package. As a result, we can expect the much-needed recovery of the country's economy to be delayed until after this election.

As the list of uncertainties grows longer, especially on the front lines of the virus situation, the risk is now shifting to the downside. As the November election approaches, the strong valuations of growth sectors despite the recent correction, and the high probability of possible national gridlock in the U.K. and elsewhere, all indicate that the economic recovery is running out of steam. All of these factors indicate that the times ahead will be more volatile.

Forex markets do not yet reflect the risk aversion observed in equity markets. The dollar is trading slightly lower against its major counterparts, with the DXY down 0.14 percent at the time of writing. The Fed is clearly the winner among other central banks in providing the most accommodative monetary policy, meaning that long-term projections for the dollar remain on the downside. However, if U.S. equity sell-offs accelerate this week, the USD should regain some strength.
The Supreme Court battle presents another major risk for investors.

Investors began last week in a complex environment as they faced a major turnaround just a few weeks before the November presidential election.

Supreme Court Justice Ginsburg died on Friday, meaning her seat on the country's highest federal court became vacant. U.S. President Trump and his Republican colleagues are now rushing to appoint someone to the position, as the appointment would be critical in shaping the ideological framework of the Supreme Court for many years, potentially even beyond the term of the next U.S. president. And a conservative jurist would be more attractive to Donald Trump's electoral base, which Democratic candidate Biden would like to avoid.

In other words, the presidential election will not only be about who will occupy the White House, but also about the leadership of the Supreme Court.

Since the virus broke out, market players have been waiting for more stimulus from legislators, and Washington, D.C., is caught in a battle between Republicans and Democrats over the next round of U.S. budget support.

However, this battle for the vacancy of the Supreme Court could dominate the political agenda ahead of the elections, perhaps to the detriment of the next round of fiscal stimulus. This could reduce some of the optimism that continues to build up in U.S. equities due to the possibility that a new financial stimulus package will enter the world's largest economy to boost stock market performance. Instead, it adds another significant element of uncertainty for the next few weeks.

Now that the Dow Jones Industrial Average has broken below its 50-day simple moving average, a break below this level of support will likely make the benchmark susceptible to further declines until it can find a more stable base.

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