European equity markets finished the end of last week on a solidly positive note, helping to post their third weekly gain in the last four weeks.
Despite last week’s modest stabilisation there still remains a degree of concern that a rise in infection rates in China, Japan, India and a number of US states, could well derail the prospects for a recovery as economies continue to try and re-open, across a range of businesses.
The decision by Apple to re-close a total of 11 stores in Florida, Arizona and the Carolinas, as well as the suspension of cruise ship operations from US ports by the Cruise Lines International Association, prompted US markets to roll over into the close on Friday, as rising infection rates increased concern over the prospects of the V-shaped recovery, that markets continue to price as the most likely outcome.
This belief of a V-shaped recovery is likely to be tested further in the coming days, with the UK set to announce a possible relaxation of the two-metre rule later this week, in an attempt to help prevent systemic damage to the hospitality industry, while a rise in localised coronavirus cases in Germany, has raised concerns about a second wave there, as the 4 day average 'R' rate moved from 1.79 to 2.88 in the space of a day. This sharp rise in cases, with 1,000 in a single location, have raised concerns that the disease is getting out of control again. On the more commonly used 7 day average, the R level has edged above 2, and while the number of cases in Germany still remains low, there is likely to be some anxiety about it heading even higher.
With Germany widely lauded for its swift coronavirus response, both from a fiscal as well as a medical standpoint, countries across Europe will now be nervously glancing in its direction as authorities there grapple with this resurgence, over concerns it could ripple out beyond its borders and threaten the reopening plans of countries across the rest of Europe. With Spain also lifting its own state of emergency, so that it can reopen its tourist industry, there will be widespread apprehension about what is going on in Germany, and whether it paves the way for the prospect of similar outbreaks in a few weeks’ time throughout the rest of Europe.
In Asia, markets there appear to be shrugging off these new concerns for now, alongside the latest published details of the new national security law for Hong Kong, which was outlined by Chinese authorities on Saturday, and is expected to pass into law on 6 September. China has said the draft law is targeted at protecting its national security from subversion and terrorism, while the US, EU and the UK fear that it will be used to undermine the one country two systems framework which was agreed as part of the treaty handover of Hong Kong to China in 1997.
European markets in contrast, look set to open modestly lower with the focus here set to be on the rising infection rates here in Europe, as well as stateside, over concerns that the markets v-shaped recovery scenario could come unstuck. In a sign that investors continue to remain edgy, gold prices have continued to edge higher with the recent highs at $1,765 likely to face a retest.
EUR/USD – has been in decline since peaking above 1.1400 earlier this month. Finding some support down near the 1.1160/70 area for now, however a break below the 1.1150 level could well open up a move towards the 1.1020 area. Interim resistance at the 1.1270 level.
GBP/USD – looks under pressure having broken trend line support at 1.2430, and the 50-day MA at 1.2420. This break opens up the prospect of a return to the May lows at 1.2075. We need a move back above the 1.2450 area to stabilise.
EUR/GBP – has broken above the 0.9000 area, and having done so opens up the prospect of a move back to the 0.9240 area, if we can hold above 0.9020. Trend line support from the lows this year comes in at the 0.8925 area.
USD/JPY – currently has resistance at the 50-day MA at 107.70/80 area, with support coming in at the 106.40 area where we have cloud support. A break below 106.00 and the May lows opens up the prospect of a move back to the 105.20 area.