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TODAY ON WALL STREET: The return of risk aversion

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07/16/2020 | 08:59am EDT

Stocks are down today as investors worry about the spike of Covid-19 cases and how it could hamper recovery. This contrasts with yesterday, when the positive data obtained by Moderna with its vaccine reassured investors.

Financial markets in 2020 are looking like an air balloon that is gaining altitude despite the holes that are opening up all over: broken-down sectors, rising unemployment, deteriorating economic prospects, international political and economic tensions, the ever-present covid-19... The list of leaks is long. But investors have confidence in their patch suppliers: governments, central banks, pharmaceutical companies... So far, it's working pretty well. Still, news of companies laying off employees keep coming, while restaurants and tourist sites remain empty.

In China, after dropping 6.8% in the first quarter, GDP rebounded by 3.2% in the second, at an annualized rate, i.e. compared to the same quarter of 2019. This is better than expected (+2.5%), even if this does not prevent the economy from posting -1.6% over the first half of the year. Between the 1st and 2nd quarters of 2020, the rebound is 11.5%, almost mechanically since the country had suffered the bulk of the Covid-19 shock in the first quarter, while the other economies will suffer mainly in the second.

The FED published yesterday its Beige Book, stressing that the economy was slowly recovering but was still below pre-COVID 19 conditions. It also pointed out that there are many uncertainties. A little further north, the Canadian central bank kept its rate unchanged at 0.25%, saying that "the Bank of Canada will be there for the whole long rally". Chilean and South Korean banks kept their rates unchanged and Indonesia cut its rates by 25 basis points.

The ECB left deposit facility rate unchanged at 0.5 %, kept its pandemic bond-buying program at €1.35 trillion and left its main refinancing rate unchanged at 0%.

In other news, the Trump administration has reiterated its threats against the Nord Stream 2 project. The Russian gas pipeline to supply Germany and Central Europe still does not please him. Mike Pompeo said it’s “a clear warning to companies that aiding and abetting Russia’s malign influence projects will not be tolerated”. As for China, Donald Trump said he is considering banning all CCP members, their families, and Huawei employees from entering the United States.

Today on the agenda, we have the Philly Fed Index, Retail Sales and weekly Unemployment Claims, as well as business inventories and the NAHB real estate index

Romain Fournier
© MarketScreener.com 2020
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