Global Markets: COVID-19 vs. FOMO

Last week began with the ‘reflation trade’ speculation that was emerging in the previous week, with equities and gold higher and bond prices lower. However, COVID-19 just keeps fighting back even in countries which had hitherto been containing it quite successfully. Investors are not normally troubled by human misery and the exuberance was only dispelled by the implication in the latest FOMC minutes that the Fed is unwilling to ease much more, at least for now. As a result, the Nasdaq (up another astonishing 2.65%) was the only major equity index to build on its early momentum while most others in COVID-19 afflicted countries (notably the recently favoured South Korea and  Euro Area) actually ended the week lower. Gold gave back all its gains from Monday and Tuesday while bonds recovered almost all their losses from the previous week, with the intriguing exceptions of longer-dated US Treasuries and gilts.  Consistent with these movements, Oil and Bitcoin fell while the dollar lost ground vs. the yen but rallied vs. the euro. Somewhat surprisingly, sterling continued its consolidation since July vs. the euro and was flat against the dollar. 

Despite the intra-week change of direction in market prices, FOMO seems alive and well amongst risk-taking investors. Robin Hooders in the US are continuing to make money on Big Tech as are their counterparts around the globe with new reports of big rollers in Russia and Malaysia. Family Offices and Hedge Funds are still punting in force, although the CNN Fear and Greed Index is still just shy of ‘Extreme Greed’. A real surprise was a shift in the August BoA Global Fund Managers Survey, with the bulls now outnumbering (just) the bears and a growing belief that a new economic expansion is in its early stages. However, the Survey was conducted before the FOMC minutes were published. 

While economic data is showing rebounds of varying sharpness, doubts remain about the strength of ongoing Consumption, even in China.  Unemployment is still only elevated in the US because of the way the numbers are counted.The housing markets in the US, UK and Germany are booming but it is debatable how good news that is, whether or not it lasts. It seems almost in bad taste to recall that COVID-19 has caused recession everywhere except in China and Vietnam and especially deeply (so far!) in Mexico, Philippines,, Singapore, Malaysia, Colombia , Peru, the Euro Area, UK and, of course, the US. Given the continuing chaotic response under his watch, it will require an extraordinary concentration of older white males in swing states to re-elect President Trump but many investors, confident of more fiscal and monetary stimulus, do not seem to care much. There is a similar insouciance over the Brexit negotiations, despite the absence of progress and the  increasing prospect of tariffs, cross-border red tape and mutual non-recognition of professional qualifications. 

FOMO seems a reckless response to COVID-19 and its aftershocks. Both have the capacity to inflict much harm.