No consistent global approach towards Corona pandemic crisis – Market Analysis – July 13

By: Miguel A. Rodriguez

09:45, 14 September 2020

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COVID-19 induced crisis is round the corner

The trading week has started with a better feeling of risk in the market, although the number of contagions due to the pandemic has reached the highest level globally and has not shown signs of falling until now.

China

The Chinese premier's statements that the economy shows a steady recovery provide an element of optimism. The government is determined to implement all necessary economic stimulus policy measures, including interest rate cuts. 

This week, on Thursday, a relevant economic figure will be published that investors will monitor and will be interpreted as a barometer of the global recovery; this is Q2's Chinese GDP. 

An increase of 2.1% vs. -6.8% of the previous data is expected. Better data that exceeds the forecasts will be enough to arouse investors' risk appetite and, therefore, serve as a boost for the stock markets.

Europe

The statements of the French Finance Minister, Le Maire that domestic consumption has only suffered a fall of 5% in these months of the crisis has also been a factor of support for the markets, especially the European ones, by providing arguments in favor of a V shape recovery. 

The German economic figure ZEW economic sentiment for July that is published on Tuesday, if it improves concerning the previous data, may also contribute to these expectations.

EUR/USD has rebounded to the 1.1330 zone due to Dollar sales in a risk-on scenario. Still, for the currency pair to overcome the intermediate resistances located at 1.1350 and 1.1370-80, the market needs to maintain more continuously their risk appetite.  


The market has been in an undecided mode ranging from appetite to risk aversion, sometimes even on the same day.

For this to happen, in addition to positive advances in the aforementioned economic figures, the market awaits with great attention the result of the meeting that the European leaders will have at the end of this week to decide on the form and content of the stimulus package known as the "next-generation" rescue fund. 

Until now there are no clues or leaks that can be used to make a forecast, it is only known that bilateral meetings are being held between different leaders to prepare for the meeting and that countries of high weight in the EU such as Germany and France are in favor of the model presented by the European Commission, but on the other hand small countries, the so-called "frugal" like Holland or Austria, are opposed to granting funds without conditions and want to reduce the size of the fund.

A delay in decisions due to lack of agreement would mean a setback for the Euro and the European indices, especially Italy and Spain, however, if proximity is perceived in its achievement, the market will bet strongly on the stock indices of these countries and the Euro.

Spain35 has been in lateral movement, directionless, for the last four weeks but has always remained above 100 days SMA. A first bullish signal would be overcoming the previous high at 7600, which would place targets in the 7900 area,.


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