Investors in the stock market seemed to ignore the not so good data coming from the economy. The biggest crisis was to appear in the first quarter of this year, and the second quarter was to be the quarter of recovery. As we now know, after the publication of data for April or preliminary data for May, the situation in the second quarter will not be as good as it was assumed in the first. The stock exchanges, on the other hand, are not particularly responsive to this.
There are strong opinions that there may be a second wave of illnesses in the third or fourth quarter, which could drive the US economy into an even greater recession. This was also written in the minutes of the last Fed meeting. But the President of the United States has a way of doing this. He made it clear that he would not close the US economy again if the second wave of infection came. Trump added that in such a case the US would fight the epidemic on the spot to suppress new outbreaks of the disease, but would not close the country. Even if the second wave does not come, it seems that it may be difficult for consumers to mentally return to the pre-epidemic situation, another important thread for Wall Street.
Another pretext for correction is the resumption of riots in Hong Kong. Growing tensions between the US and China over international trade and Beijing's plan to implement national safety regulations in Hong Kong are hitting markets. As a consequence of China's actions, the US President has warned against a strong reaction to the attempt to take greater control over the former British colony. In the shadow of the fight against the virus, another round of the battle of Hong Kong, therefore, appears, with serious geopolitical consequences.
Stock market indices have also responded in a downward movement, with oil prices also falling with a twice higher trading volume at the Asian session than usual. Beijing did not set a growth target this year, which could have been even more disappointing for the markets. Concerns have therefore been raised that the rebound in the Chinese economy may either not be sustainable, or may not be very dynamic, and markets have been given another argument for correction.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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