This week the markets have had a rough time, largely due to rising fears of a second wave of the coronavirus global pandemic. Indeed, whispers of a second wave have been around for weeks, largely because the World Health Organization warned us about it, but up until two weeks ago investors did not really pay any heed to that warning. So why have things changed now?
Simply put, the numbers are alarming. While countries like Brazil and India are still dealing with a heavy initial outbreak of Covid-19, other places that previously saw their estimated peak of the virus are now seeing a resurgence.
China was the first country to show signs of a second wave of the coronavirus pandemic. As the first place where the disease appeared, China was also first to react with lockdowns and other quarantine measures. It was also the first to peak and to begin reopening its economy afterwards. Naturally, China also started seeing new cases after things went back to normal and even implemented a few new lockdowns, but the numbers - if official figures are to be believed - are significantly lower than before. Over the past two days China has reported just around 20 new Covid-19 cases per day.
South Korea, one of the first countries the coronavirus spread to, is also seeing a similar resurgence, with only 20-30 new cases per day and an enviably low lethality rate as a result of the well-preparedness of the South Korean authorities and health services.
Countries in Western Europe which have been reopening their economies since May are seeing new Covid-19 infections as well. The UK reported over 1,000 cases yesterday, Spain did 400, Italy reported 300, and Germany 530. While worrisome, these are still far lower numbers than seen when these countries first wrestled with the coronavirus in March and April.
The real problem now seems to be the United States, the country that also experienced the worst initial outbreak. On average, the US is now reporting about 40,000 new coronavirus cases per day, and that is considering the limited testing capacity of the country. The most likely reason for this is the impatience of the United States to end the lockdowns before the real peak of the infection was reached.
For comparison, European countries encountered the pandemic at least a month before the US did and are still slowly phasing out of lockdowns, while many states did so in May, meaning the quarantine period was much shorter in the United States, despite the record high numbers of coronavirus patients.
Now the United States might have to consider employing new lockdowns, at least in the most heavily states (Texas, Florida, and California). Though this is clearly necessary for health reasons, the US economy, especially the labor market, will be hit doubly hard due to the heavy blow it suffered in the first round of the pandemic.
Needless to say, investors have been quite pessimistic in light of these developments. Risk sentiment has dropped and interest in safety assets has skyrocketed. Thus, the US dollar and gold are currently the most profitable trading instruments.
