October already? Are you sure? Q4 is upon us and we’re here to kick off with this week’s trading preview. Today, we’re looking at the potential impact of a second wave. Would it trigger a global recession? Following that, we’ll dish up the most important trading events for your calendar this week.
The dreaded “Second Wave”
Is it still lurking on the horizon? Is it already here? Either way, what could a Second Wave do to the state of the global economy? Let’s have a look…
Impact on the economy
We all know what reports of first wave did to the global economy. Lockdowns, furloughs, unemployment, businesses folding and those horrible graphs that never seemed to head in a downward direction.
We only need to wind the clock back a little bit to see what could happen again this time. But a second, potentially worse wave would undoubtedly throw the world economy into a deep, deep recession.
However, for now it seems that we’re keeping our heads just above the water.
Experience is everything
Albert Einstein once said, “The only source of knowledge is experience.” As with many other things, Albie has a point here. The Second Wave is exactly that — second. We’ve been here before, done it and bought the t-shirt.
Right now, governments across the globe are seeing a rise in infections, but this is (so far) not translating to a rise in hospitalisations. The theory is that all that social distancing, mask wearing and hand washing works! Additionally, global science has now had the best part of a year to study COVID-19 and have found more efficient ways of treating infections.
COVID-19 Daily Cases
Good news from the OECD
Back in September, the OECD downplayed the potential impact of a second wave, stating that it didn’t believe the coming recession would be as deep as it first predicted back in June.
They also believe the recovery will be more modest than anticipated, projecting a contraction of 4.5 percent in global economic output this year and a return to growth of roughly 5.0 per cent in 2021. That’s significantly down on its June statement, when they predicted that the global economy would shrink by 6 per cent in 2020 and return to growth of 5.2 per cent next year.
It’s not exactly champagne popping time, we’re still talking about a global recession. Yet, it is definitely an improvement on the one that was first predicted.
About that recovery…
The previous global recession that was triggered in 2007 saw the US and Europe struggle to clean up their banking systems. Meanwhile, both China and India initiated humongous stimulus packages to skip over the recession entirely. With the world in tatters, China’s GDP grew 9.4% in 2009; while India’s climbed by 7.9%.
Economists have argued that the actions of these countries were the catalyst for the global recovery back then, and were the main reason why global GDP only fell by 0.4% in 2009.
Fast-forward to 2020, unfortunately no country on the planet has been spared , be that human, monetary or otherwise. Put simply, China and India can’t bail us out of this one.
What happens next is anyone’s guess, but investors should be wary of the warning signs ahead.
What else could impact?
Some other factors that might cause a little more than a flicker in the markets:
● Trump’s reported ill health. Keep an eye on the USD over the next few weeks.
● The result of the US Presidential Election (assuming it goes ahead.)
● Brexit. Can the UK secure a favourable deal? How will the GBP pairs react?
● The US-China Trade War. How will this impact the respective currencies, the tech and automotive industries and unemployment?
Put these things together against the backdrop of a global pandemic, all of these factors could easily cause economic turmoil.
Hold onto your hats!
What’s going on this week?
We highly recommend keeping an eye on the following events.
No major events scheduled.
● The RBA will announce Australia’s Interest Rate Decision (AUD)
● The FOMC will release their Meeting Minutes (USD)
No major events scheduled.
● The UK will announce its YoY GDP figures for August (GBP)
● Finally, Canada will give us a glimpse at its Unemployment Figures (CAD)
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The Contentworks team