Fears of the second wave, South Korea and the consequences

12 may 2020

After last week's rampant fun, it seems the markets are moving on to the hangover stage. The Fear Index on Monday increased, and stock markets, on the contrary, declined. The reason for the change of sentiments was the fear of a new wave of pandemic.

Actually, we have already written about this: if Italy, Spain or Germany had more or less objective grounds for the partial removal of restrictions, then the United States against their background looks completely unprepared for the opening of the economy. However, Trump is impatient, like many other countries. Obviously, mitigating quarantine at the peak of a pandemic is a rather dubious adventure with extremely unpleasant consequences. It is not only about a new round of the pandemic, but also about the fact that the economy against this background will have to be closed again.

In general, on the one hand, we are happy that at least someone begins to realize how dangerous the rush can be. On the other hand, the authorities are unlikely to reverse their decisions. So just in case, you should prepare for the worst. In this light, stock market sales remain a relevant trading idea, as are dollar purchases.

Central banks against this background continue to threaten the consequences for the economies, and also warn about new monetary incentives to fight the crisis.

Note that the example of South Korea showed how quickly an ideal country to combat the epidemic can turn into an antihero if measures are cut earlier and stronger than necessary. This refers to the opening of nightclubs in South Korea and the ensuing outbreak of diseases (the number of new cases has increased by almost 10 times over several days).

Meanwhile, a scandal with Germany is slowly erupting. After the German court issued an ultimatum in 3 months for the ECB to review the QE program, the European Commission threatens to sure Germany.

And a couple of words in the end. We have already noted that statistics on the US labor market came out totally devastating and worst in the entire history of observations. But there was also rather interesting point that few people paid attention to - a sharp increase in wages. It would seem a positive signal. Under normal conditions, yes, but not now. The sharp increase in average hourly earnings only indicates that the least paid workers were losing their jobs much more often than the others. Given that current unemployment assistance is higher than the salary of many low-skilled workers, this can lead to the fact that even when it becomes possible to return to work, workers can simply ignore it. Why, in fact, return to work if you can get more being unemployed. As a result, the budget suffers from excessive deficit and the economy suffers from a lack of workers.