From panic to rebuilding?

US indices ended Wednesday with a 4.4% loss on S&P500 and Dow Jones. Trump’s warning of horrors to come caused pressure on the markets and became an unexpected pressure factor for the market. Asian indices also started trading on Thursday with a decline. However, they turned to growth amid signs of stabilization of new cases of infections. Without spreading acceleration, medical professionals and the government have a chance to build sufficient capacity to help patients in critical condition. For markets, this could be a signal that there will be no new quarantine toughening (just an extension). Possibly, analysts may start their forecasting of a recovery in business and consumer activity.

Unfortunately, the recovery is unlikely to be as sharp as the downturn in March and April. After all, we are not talking about long New Year’s or Christmas holidays, but numerous breaks in logistics chains. It won’t be an exaggeration to say that in many cases, business processes have to be rethought. And it’s a long way with a possible change of stock market leaders.

Now it seems evident that there is a growing “interest” in pharmaceutical companies and online services. Asia has maintained a culture of social distancing and hygiene for years after previous outbreaks of infectious diseases. With some changes, this culture may come to Europe and the USA.

Another critical consequence promises to be the strengthening of the role of the state and increased measures to control the movement of citizens. A vital result should also be increased government infrastructure spendings. For the most part, this did not happen after the global financial crisis, as budget committees were concerned about inflating government debt.

Those fears are overshadowed by a renewed focus on the value of human life.

The foreign exchange market, an indicator of the significant capital’s mood, is already showing a change in sentiment, as can be seen in the fall of volatility to early March levels. Commodities are rebounding from extreme lows, where they mostly fell on emotions earlier this month.

Changes may also affect the currency market. The euro is at risk of becoming a hostage to the EU governments’ need to print much money to get the economy back to growth. Under these circumstances, EURUSD may decline in the coming weeks and months until there are signs of accelerated growth.

The FxPro Analyst Team