Markets fear the worst of the pandemic is not over yet

Markets fear the worst of the pandemic is not over yet

Investors are showing increasing signs of unease. Shelter in the dollar and a downward trend for the rest of the currencies. Pessimism and concern for commodity-exporting countries such as the U.S.

The recent crash in global equity markets and the huge stampede towards the safety of US Treasuries suggest that investors doubt that the long-awaited return to normalcy, following the economic crisis caused by the pandemic, is feasible in the short term.

Data from the United States and China, which account for more than half of world growth, suggest a slowdown in the dizzying pace that the world economy had recently shown, along with rising prices for all types of goods and raw materials.

Coinciding with a resurgence of the delta variant of Covid-19, markets may be sending alarm signals about the global economic outlook, Deutsche Bank’s chief currency strategist George Saravelos told clients.

“As prices went up, the consumer was cutting demand instead of advancing consumption. This is the opposite of what one would expect if the environment were truly inflationary and shows that the world economy has a very low-speed limit, ”Saravelos wrote.

The sentiment was also evident in the recent data stream. Bank of America Merill Lynch pointed to “stagflation” concerns for the second half, noting the slowdown in inflows into stocks and outflows from high-yield assets.

Markets in pandemic times


Data on the weekly positions of currency hedge funds is the closest available real-time indicator of investor sentiment on the currency markets, which move $6.6 trillion a day.

With the dollar at its highest level since the end of March, the latest data from the Commodity Futures Trading Commission shows that net long positions in the dollar against a basket of currencies are the highest since March 2020. In early June, they showed a net balance of short bets.


In recent months, investors optimistic about the economic recovery poured a lot of money into so-called cyclical sectors, such as banks, leisure and energy. Ultimately, these are companies that benefit in times of economic recovery, but the tide may now be ebbing.

“Growth” stocks, especially techs, have outperformed their value peers by more than 3 percentage points since the beginning of July. Many Goldman Sachs clients believe that the cyclical turnover was a short-lived phenomenon fueled by the recovery from an unusual recession, according to the bank.


Earlier this year, the trajectory of the dollar was determined by the interest rate differentials enjoyed by US debt vis-à-vis its rivals, with correlations peaking in May.

While real or inflation-adjusted returns in the United States remain higher than those of their German peers, the drop in nominal returns in the United States below 1.2% this week has raised concerns about the global growth outlook. .

Ulrich Leuchtmann, Commerzbank’s head of foreign exchange, said that if world production and consumption were not to return to 2019 levels soon, assume that there is a permanently lower GDP trajectory. This is reflected to some extent in the bond markets.


Investor sentiment has become more cautious, according to weekly polls by the American Association of Individual Investors. BlackRock, the world’s largest investment manager, cut US equities to neutral on its mid-year outlook.

Stephen Jen, who heads hedge fund Eurizon SLJ Capital, noted that with China’s business cycle ahead of that of the United States or Europe, weaker data from that country is leaking to investor sentiment in the West. .


Popular reflation operations in commodity markets have also reversed. The ratio of gold to copper prices has fallen 10% after reaching highs of more than six and a half years in May.