The recovery rally has recently started to show signs of slowing down with markets moving sideways and most of them off their recent highs.
For several weeks now the majority of investors and fund managers have questioned the extent of the disconnect between markets and the economy. Markets had bounced back at record speed with unprecedented stimulus packages worldwide spurring risk appetite.
The rally has however started to show signs of fizzling out as current investors will increasingly be weighing the possibility of a pullback with that of further upside, and new investors wondering whether it is worth getting in at current levels.
The number of risk factors globally seem to be increasing as the focus is no longer just on the US-China relationship and the fear of a second wave of Covid 19. So far, these factors have not significantly influenced markets but they have the potential to.
India and China are currently engaged in a border war which in the last week has turned deadly. Both countries will be keen to reach some form of agreement peacefully, although both have indicated they are not afraid to retaliate should they need to.
Apart from their trade deal frictions, the US and China are in a power struggle over the EU with both countries keen on securing good relationships with the important trading block. The annual EU-China summit has started this morning where some contentious issues will be discussed, among them China’s Hong Kong policy. President Xi from China has decided to join the meeting quite late, signalling just how important China views this meeting with the EU as he would normally just let the Premier of China, Li Keqiang, take the reigns.
The Black Lives Matter protests that started in the US, have become a global movement with police being under intense scrutiny. These protests have turned violent often and seems no closer to being resolved.
The delay in finding a vaccine for Covid 19, and the fear of a full-blown second wave, will be the biggest concern for investors in the medium to long term. More and more headlines are making the news with regards to treatments currently being tested and their efficacy, but finding one still seems some way off. Also of concern will be that fact that some important states in the US, like California, are still seeing record daily increases in cases during their first wave.
Finding a vaccine will remain the top priority globally. This also serves as a sub-plot to the upcoming US presidential election. Trump will want a vaccine found sooner rather than later in order to boost his chance of re-election, so expect more free PR from him on behalf of pharmaceutical companies.
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