Week in a Glance: Bank of England, pandemic and the second wave

22 cze 2020

Last week was full of various events, both economic and political, such as the meeting of the Bank of England, Powell’s testimony in Congress, the armed conflict between China and India, protests in the United States, the outbreak of pandemic in Beijing and a general worsening of the world epidemiological situation. This is not a complete list of what happened last week.

Despite the fact that most of these and other events had a rather negative impact for the economy, this already habitually did not prevent the stock markets from growing. Millions of “noise” traders supplied by platforms like Robinhood are doing their job and continue to blow bubbles.

Powell in his testimony before Congress did not say anything fundamentally new and only tried to cool the hottest heads, recalling that you should not count on a quick economic recovery.

Even the “witching day” did not help on Friday afternoon - the massive expiration of futures and options contracts on the US stock market could not stop the current frenzy. Despite the fact that we are once again going against the will of the market, we continue to recommend sales in the US stock market and will open short positions on major US stock indices this week.

Moreover, the situation with the pandemic is not something that has not improved during last week, but rather worsened and quite strongly. The outbreak of disease in Beijing, in which for a couple of months they forgot about the coronavirus and now about 150 new cases in literally 1-2 days. Germany's R number rockets again - from 1.79 to 2.88. US has 30K new cases per day again. So the fear of the second wave has acquired a completely material form.

Main European currencies had problems last week. The pound was under the pressure from weak statistics and the lack of progress in negotiations with the EU, and even the Bank of England, with its additional 100 billion pounds to expand its quantitative easing program, could not reverse the negative market sentiment.

As for the euro, the ECB's record injection of money (the largest refinancing operation in 22 years of the ECB's existence), in which 724 banks received 1.308 trillion euro loans from the regulator, provoked downward pressure on the euro.

The negative for the euro intensified on Friday on news that the EU countries did not agree on a program of assistance of 750 billion euros to the economies of the countries affected by the coronavirus.