Week in a glance: gloomy forecasts, fear returns, and protests

15 июн. 2020 г.

Last week can hardly be called rich in fundamentally new fundamental events. But the markets were very volatile. The reason for the strong movements was not a change in objective reality, but rather a change in sentiments towards it. If for a long time the markets ignored the fact that the world economy is experiencing the worst crisis in the last 100 years, then last week after the publication of forecasts from the World Bank (global GDP will shrink by 5.2% in 2020), OECD (at best, the world GDP will lose 6% in 2020, and at worst to 7.6%), as well as updated forecasts from the Fed following the FOMC meeting (the US Central Bank expects the country's GDP to decline by 6.5%), market sentiment has changed dramatically. Greed was replaced by fear.

If you believe that the veil of optimism will not again obscure the vision of the markets, then this week we should expect a further decline in the stock markets, the growth of safe havens (gold and the Japanese yen), the growth of the dollar, lower prices on commodity markets, primarily prices for oil, as well as the subsidence of currencies of developing countries. At least that is how financial markets have reacted to rising fear recently.

Moreover, the markets have enough causes for concern: this is the protests in the USA, the new peak of the pandemic, the sharp increase in the number of cases in Latin America and India, the fear of the second wave, and tensions between the USA and China.
Another important event of the week in terms of macroeconomic statistics was the publication of data on UK GDP and industrial production in April. The data were even worse than the extremely pessimistic forecasts. A 20.4% drop in Britain’s GDP was a record for the entire history of observations. In this light, this week we will continue to look for opportunities for pound sales.

The upcoming week in the news plan promises to be quite eventful. The Central Bank of Japan and the Bank of England will announce their decisions on monetary policy parameters, a lot of inflationary statistics will be published, in addition, data on retail sales in the US and the UK for May, as well as Canada for April, will be released. Plus Powell's testimony, negotiationsbetween EU and UK. This week not going to be boring.

Our recommendations this week are essentially a bet on growing fear in the financial markets. So, we will sell in the US stock market, search for opportunities to buy safe haven assets, as well as the US dollar (primarily against the British pound).