October 20, 2020

European futures in Covid-19

European futures in Covid-19

European futures are trading lower as traders are concerned about the surge in coronavirus cases across Europe. The situation is getting worse as Europe faces the second Covid-19 wave, and local governments are trying their best to bring the situation under control. 

The Concern

The current restrictive measures, which include strict lockdowns in some places, will suppress economic recovery. This particular concern was also voiced by the President of the European Central Bank, Christine Lagarde. 

Ms. Lagarde urged local governments to do whatever they can in terms of their fiscal policies so that there is less damage to their economies. 

The fact is that it is unlikely that we will see any more support coming from the ECB any time soon as the ECB has already pushed the envelope to its capacity. But traders are hopeful that regional governments will support the situation, and they will provide an extra cushion to soften the blow. 

Covid Numbers Are Rising 

The coronavirus situation is also getting worse in the U.S. The Covid-19 numbers are rapidly rising again. Investors are facing the same fears over there—the lockdowns, which choke off the economic activity. So far, there hasn’t been a massive change in restricting social activities in the U.S., but if the Covid-19 cases continue to increase, which they are, we are likely to face more restrictions. 

Self-Imposed Deadline 

Traders and investors are also keeping a close eye on House Speaker, Nancy Pelosi, who has created a self-imposed deadline concerning the second stimulus aid package. Traders are tired of waiting as they know that another stimulus package is badly needed to revive the economic growth in the U.S. 

Without the second stimulus package, the unemployment rate is going to go through the roof, as more and more businesses will go bust. Under that scenario, more Americans will lose their jobs. 

Ambitious Task 

Politicians are playing with words, but they do not realise that what they are actually doing is playing with the U.S. economy. So far, we have heard some sweet talk from President Trump and Nancy Pelosi, but the reality is that the possibility of another stimulus package becoming a reality before the U.S. elections remains a very ambitious task. 

Knee-Jerk Reaction

There is no doubt that even when we do get a green light on the second stimulus package, it may only bring a knee-jerk reaction for the markets, meaning the market may move higher for a short period of time. After that, the stock market may start to drift lower.

This is because the underlying reason for economic weakness is the coronavirus. As long as we do not have a coronavirus vaccine and enough doses to treat the public, it is unlikely for growth to return to its pre-Covid level.

The U.S. Fed Vice Chair, Richard Clarida also echoed this message when he said that the economic recovery is unlikely to return for another year. 

The Battle 

As for gold, the precious metal is in battle with the 1900 mark. The gold price is trying its best to stay above the 100-day moving average on the daily time frame, and only time will tell if it will win this war. One thing is certain, and that is that the bulls are not giving in that easily. This is because there is just too much uncertainty concerning the U.S. elections and coronavirus, which are keeping traders interested in gold prices.