1022 GMT December 04, 2020
It is clear that until the end of 2020, markets will have hinged on COVID-19 spread. Just a few months ago, experts anticipated moderate recovery across the world. Washington finally struck a ‘phase 1’ trade deal with Beijing. Then, economies suffered unparalleled disruption.
The outbreak shocked national systems as one economy after another closed down. Today, borders are shut and markets are panicky. Nobody knows for sure how long the threat will persist. Meanwhile, monetary policies seem to have reached their limits. What are investors to expect?
Medical experts voice different opinions regarding the longevity of COVID-19. Generally, financial growth may resume in the second half of the year. Everything depends on the real duration of the outbreak. We are yet to see grounds for confident predictions.
Once the virus begins to subside, the US dollar may no longer be a safe haven. On the other hand, currencies like AUD, NZD, CAD, and GBP are expected to get a boost. Right now, they are generally undervalued. Therefore, currency traders may capitalize on the changes by selling their US dollars. Traders looking for opportunities may follow effective FXTM Iran strategies that make trading available even for beginners.
Beijing has managed to contain the insidious virus with tough measures. Between March 1 and 18, only ten cases per day were recorded outside of the Hubei province. Similar dynamics are seen in South Korea. Moreover, the fatality rate is mostly correlated with pre-existing conditions and old age, and it is estimated to be under 1%.
If COVID-19 is transitory and contained by July, the world economy may experience recovery in the second half of 2020. Signs of this were already seen in indicators before the pandemic. The previous year had brought loosening in fiscal policies by global central banks. In fact, it was the strongest since 2008. This easing continued even after the outbreak.
To help national economies stay afloat, governments are taking serious fiscal stimulus measures. For instance, the U.S. Treasury is considering a $1.2 trillion stimulus package. This equals 5.5% of the country’s GDP.
The country has important advantages in comparison with other virus-hit states. First, the government was able to launch fiscal easing without delay. The Bank of England reached the zero-lower-bound. Secondly, over 1% of GDP will be spent on stimulus measures. The FTSE 100 has declined due to three powerful factors:
The market for equity has been showing unimpressive results since the 2016 referendum. This is now exacerbated by the virus, which has caused FTSE 100 to decrease to exceptional lows. This means those who trade market indices may capitalize on the fall.
Outside of Asia, no region has been hit harder. The strong connection to global trade plays a part. Another factor is the inability of the European Central Bank to impose rigid controls. Stimulus measures present a challenge due to the EU fiscal regulations.
With Italy, Spain, and France suffering substantial damage from quarantine, the prospects are bleak. It is likely that other European states will take similar containment steps. All these conditions have caused the Eurozone stock index to plunge. By the middle of March, it had already lost over 35%.
However, there is an upside. Not only is the region likely to dive into a deeper recession than the US. It is also likely to recover sooner. When the virus is finally contained and economies reopen, the Eurozone will be the key global trade beneficiary. During the recovery period, European stocks could show impressive growth. This means stock trading may bring hefty returns closer to late 2020.
Based on the containment approach, the nation is poised for a technical recession. In the first two quarters of 2020, a negative growth of GDP is logical. As cash flows weaken, indebted firms will go bankrupt, triggering a credit crunch nationwide. As for now, the pain is moderate. For instance, on March 19, the S&P 500 was 29% lower than this year’s peak. CFDs on the index will eventually gain value, so it is advisable to hold, rather than sell.
The Federal Reserve has announced a set of measures to offset the recession. These include emergency easing, asset purchases, and the alphabet soup of lending programs expected to improve financial conditions. Additionally, the U.S. Treasury and Congress could agree on emergency funding channels to help industries where liquidity is most needed.
The national economy is shaky due to the colossal typhoon and VAT increase. With pandemic in full swing, the recession is inevitable. The government has started stimulus measures.
The Bank of Japan is buying more bonds and ETFs. Emergency fiscal measures are expected soon. Overall, Japan is likely to suffer substantial damage due to constant deflation. However, the Chinese trade deal has had favorable effects. In mid-April, the Nikkei 225 reached its highest close since March 10. Exports and imports have fallen less than expected.
Globally, GDP is unlikely to turn positive soon. Moreover, it may remain negative until late 2020. Containment schemes have essentially shut down entire economies. Therefore, it is hard to say when a positive range will be reached.
We are seeing more and more cases of infection and deaths daily. This may call for imposing more severe measures. Meanwhile, pressure in the credit market could trigger a default domino effect. Liquidity is also likely to deteriorate across investment markets.
Some experts say this is the best time to buy stocks. Given the extensive market decline, the approach sounds reasonable. In the coming weeks and months, we are likely to see further dips and low-range fluctuation. However, in the long-term, markets do revert to their average. Hence, buy-and-hold scenarios look solid. Meanwhile, day traders may capitalize on momentary ups and downs.