Markets look past bad data and focus on post-COVID recovery
Even as investors turn briefly optimistic, it’s still early to signal all-clear: analysts
Dubai: Global investors will continue to look past bad data and focus instead on a market recovery beyond pandemic-related uncertainty, even as company earnings further pick up pace.
After an extended period of lockdown, economic stimulus is badly needed in most countries. Meanwhile, unemployment and shrinking economic growth projections are fast becoming a reality.
“Generally economic data continues to confirm the gloomy trend for the global economy, but we are still witnessing a market that is looking past the bad data to focus on improvement once the lockdowns are ended,” wrote Chris Beauchamp, chief market analyst at IG Group.
Unfazed by crushing jobless claims
Investors were unfazed by terrible jobless claim numbers coming out of US, the world’s biggest economy, which rose to a considerable 14.7 per cent in April – the highest rate dating back to 1948 and also the biggest jump with the unemployment rate tripling in a month since March.
“Even as global investors indulge in these bouts of optimism.. It’s still too early to signal the all-clear,” cautioned Han Tan, market Analyst at FXTM. “The risk of another selloff remains in play over the medium-term.”
Markets eye V-shaped recovery
Markets currently appear quite confident in a V-shaped recovery, as it sees steady progress in economies reopening post-lockdown and prices in a broadly upward trajectory seen henceforth.
Nothing in the unemployment and other economic data is bound to change that investor assessment. However, if future economic data does trend worse than expected or the path to reopening is disrupted then the markets could well fall back.
Now, as the crisis still plays out globally, the market will continue to assess news and forecasts in real time. The VIX as a measure of the market’s volatility remains elevated.
Threat of another US-China trade tiff
Risk appetite is also getting a boost after the US and China committed to executing the phase one trade deal that was signed in January. The pledge was made via a phone call between concerned delegates after US President Donald Trump earlier this month raised the possibility of fresh tariffs against China.
“The last thing investors need right now amid the global coronavirus pandemic is a one-two punch from spiking trade war risks; There are enough risks still on the table, even without the injection of trade war uncertainties, that could trigger the unwinding of gains seen in risk assets since April,” Tan added.
“The catalyst for another dramatic decline could come by way of a second wave of coronavirus cases that triggers another round of lockdowns or the realisation that the trillions spent on support measures worldwide have fallen short in restoring more normal global economic conditions.”
Rally doesn’t look sustainable
Most analysts remain of the stance that the recent rallies do not look sustainable and volatility is likely to rule the markets.
With plenty of data to come in over the coming months, market watchers add that the information will continue to keep the investors on edge with the potential of moving the markets both up and down.
While the market may not be too worried about the current dire state of economies worldwide, analysts say it doesn’t mean stocks won’t fall if the trajectory of the economy changes, or perhaps more specifically, the market’s faith in a V-shaped recovery is shaken.