What has happened
Markets had a calmer day yesterday although the US index faded into negative territory after the European session had closed. European indices today are largely catching up on the late weakness, with softness as markets open.
New case growth continues
In the United States, hot spot areas still point to a worrying pick up with Texas seeing a 5.2% increase, equivalent to around 5,000 cases. By contrast the original hot spot, New York City, continues to see positive improvements as the city prepares to ease lockdowns further. Over in Germany a meatpacking plant was also shut after hundreds of workers were found to have tested positive for COVID-19. Flare ups are inevitable given the world is still contending with the first wave of COVID-19. Investors will be watching closely to see if countries take the Chinese approach of a rapid lockdown or continue to liberalise lockdowns prompted by concerns over the economy.
The clashes between Indian and Chinese troops were deescalated yesterday with both countries keen to calm tensions. The same cannot be said of North Korea however which is continuing with aggressive rhetoric following the destruction of the South/North Korea liaison office earlier this week. In addition to the rhetoric, North Korea have said that they will send troops to the demilitarised zone. The Korean peninsula is clearly no stranger to geopolitical tensions however given the missile and nuclear testing that North Korea has embarked on, the risks grow by the year.
What does Brooks Macdonald think
It seems likely that there will be a steady drumbeat of viral outbreaks going forward which will periodically test risk appetite. At the moment, investors are fixated on central bank support so are less concerned. If however economic data fails to pick up as lockdowns ease or monetary policy is perceived to step away, this is when the risk could materialise. Today we have the Bank of England meeting and their turn to prove to the markets that the bank has not forgotten about them. Consensus points to a continuation of the current near zero rates but not a move into negative territory yet. The Quantitative easing programme is expected to be expanded by around £100bn given the ongoing economic uncertainty as the UK lags behind other European nations in their exit from COVID-19 restrictions.