The massive rebound in equities hit the wall, big time, overnight! The Dow lost more than 1500 points, as investors ran for the door, spooked by the dreaded ‘second wave of the virus’. Citizens have been under various forms of social/economic lock-down for many weeks, to avoid the dreaded killer virus, only for citizens to abandon all logic and protest the streets. The BLM protests have completely disregarded all medical advice, with the apparent enthusiastic support of liberal authorities, but now their may be a price to pay?
Massive losses in US equity markets follow unprecedented gains enjoyed by markets, in the surging ‘V-shaped’ recovery. The hit was triggered by the impact of a possible ‘second wave’ of the virus, following the irresponsible protests around the world. There is a big difference, Government will not repeat the mistakes made recently, by closing down the global economy in reaction. Treasury Secretary, Steve Mnuchin, reinforced this on CNBC commenting ‘we can’t shut down the economy again!’.
The safe haven US Dollar rebounded strongly with the collapse in risk appetite, as the EUR plunged to 1.1300, while the GBP dived to 1.2600. The steady decline in the reserve currency, was a product of growing economic sentiment, but this was questioned overnight. Commodity currencies have been major beneficiaries of the recovery, rising to levels higher than before the global pandemic. This was challenged by markets overnight, with the AUD collapsing to 0.6850, while the NZD nose-dived to 0.6400!
This is a reality check for markets. Individual stocks are far over-valued and the markets appear to have got ahead of their collective selves.