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Best of the Web - July '20

Executive Summary

The economic story in July continued to be dominated by the news from the Covid-19 pandemic, with a resurgence of the virus in some countries while others continued to see a recovery in their economies.

What do the new surges in cases mean?

After starting a downward trend in previous months, July saw a resurgence of the virus in several countries, most notably the USA. Case counts have now reached more than 16 mn while more than 600,000 have died globally as a result of COVID-19.

Second wave could push the US further under water: Multiple states in the US have seen increases in both cases and deaths, requiring many state governments to tighten restrictions again – although they have stopped short of a full-scale lockdown. Although economic data shows weaknesses in permanent unemployment, production and consumer confidence, Congress has stalled on additional fiscal support, and the US could be looking at further economic pain.

Interplay with US-China tensions could derail global recovery: The US and China have also increased geopolitical tensions, with both countries ordering the closure of consulates held by the other. Along with a weaker outlook for the US economy, as well as second waves in other countries across the world, this could end up further weakening the outlook for the global economy.

Some cautious optimism in medical developments: Reports of vaccine trials turning out optimistically have injected some positivity into the overall sentiment surrounding the global economy. This has been felt most acutely in equity markets, despite caution that a functional vaccine is still many months, possibly years, away.

What about the recovery in places without a second wave?

Europe and Asia are slowly starting to recover: After seeing the worst of the virus earlier than other countries, most regions in Asia and Europe are now seeing a slow recovery from their outbreaks. European Leaders agreed to a record fiscal stimulus package, while Asian economies have shown recoveries in their economic data as well. However, persistent outbreaks in some key markets, such as India, Indonesia, and Bangladesh have soured some prospects.

Emerging markets might be turning around: Emerging markets bore the brunt of financial weakness in the first few months of the pandemic but are now starting to see a turnaround. Inflows into emerging markets continued on a positive trajectory, with bond yields easing off as well. However, limited fiscal space to fund their recoveries could still bode ill for them, as multiple bonds might be at risk for default.

Worries of an endemic virus on global economic order: The rising outbreaks in many places around the world have brought the question of an endemic virus, one that continues for an extended period, into light. In which case, International travel could remain weak for much longer, and governments across the world might find it hard to keep financing an economic recovery for such an extended time.

How have commodities been performing?

Oil prices were flat:

Oil prices were largely flat in June, as optimism on a global economic recovery helped keep prices of crude around the US$ 43 per barrel levels, despite rising US-China tensions and a resurgence in COVID-19 cases. Prices reached a high of US$44.32 per barrel on the 21st of July, after seeing lows of US$ 42.03 per barrel on the 1st of July.

Gold prices rose to record highs:

Prices of gold rose across July, as rising COVID-19 cases and increasing Sino-American geopolitical tensions pushed investors into safety assets such as gold. Prices rose from a low of US$ 1779.90 per ounce on the 1st of July to the highest closing price on record, US$ 1910.60 per ounce, on the 26th of July.


Top 5

IMF chief warns global economy 'not out of the woods yet'

The IMF has acknowledged that the global economic recovery may face continued challenges, including a second wave of the pandemic. It anticipates global GDP may shrink by 4.9% in 2020 and only a tepid recovery in 2021, noting that substantial and rising debt levels are a serious concern.

Emerging markets register nine-fold rise in capital inflows in June

Capital flows to emerging markets securities jumped more than nine-fold in June to $32.1 billion, up from $3.5bn in May, according to the Institute of International Finance. Debt flows continued their recovery, at a healthy pace while on the equity side, the negative trend which was observed last month was reversed.

Developing nations squeezed as virus fuels public spending

Budget deficits in developing nations have soared amid measures to combat the pandemic, and analysts point out that as many as 37% of bonds in the JPMorgan EMBI could be at risk of defaulting in the next year or so. The worst may yet be to come for EMs.

When the U.S. sneezes, the world catches a cold. What happens when it has severe COVID-19?

The US response to the pandemic is emerging as a chief risk to a sustained global economic recovery. With the US economy accounting for about a quarter of global GDP, if a large share of the US population has to contend with economic hardship, ripple effects of reduced demand will affect other economies.

China posts first import growth since pandemic, exports also up

China recorded its first increase in imports since the onset of the coronavirus crissi, indicating a recovery is gaining traction. However, recovery remains fragile as consumption is subdued amid job losses, worsening US-China relations, shrinking global demand and disruptions to supply chains.

Compiled by: Chayu Damsinghe

Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.


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