Lockdown easing may lead to investment volatility, says FXTM

The gradual reopening of economies across the globe may lead to volatility in the investment markets, FXTM has stated.

Chief Market Strategist, FXTM, Hussein Sayed said there were indications that investors expected volatility in the period ahead as global economies reopen.

“Hopefully not, but when looking at how investors traded the VIX last week they seem to be expecting some turbulence ahead. Often referred to as the fear gauge, the index climbed 14 per cent last week to settle around 32 in the biggest upside move since late March. Futures on the index also moved higher with July contracts rising 6.5 per cent and closing the week at 32.6,” Sayed said.

In his latest appearance, Federal Reserve Chairman Jerome Powell has said the economy could recover steadily through the second half of the year under the condition that there is no second wave of the coronavirus.

Sayed, however, noted that when listening to the head of the National Institute of Allergy and Infectious Diseases, Dr. Anthony Fauci and other experts, many are warning that a second wave is inevitable if United States states ease restrictions too quickly.

According to Powell, there needs to be a vaccine for the economy to fully recover and that may be more than a year away.

“Trying to say with a high degree of confidence where the markets will be heading in the upcoming weeks is mission impossible. The current state of the economy is already priced in with the existing monetary and fiscal measures taken. So, do not expect to see big moves with each economic data release. I think it is better to monitor the rate of growth in Covid-19 infections as this might provide a better indicator for market moves,” Sayed said.

According to him, the other risk factor investors need to keep an eye on is US-China tensions. After US Secretary of State Mike Pompeo last week blamed China for covering up the origins of the virus, White House trade advisor Peter Navarro is accusing China of using travelers to seed the virus in Milan and New York.

He added that whether Friday’s move to block global chip supplies to blacklisted telecom company Huawei will restart another tit-for-tat tariff war remains to be seen, but the odds are now increasing.

“At this stage, that’s the last thing investors want to see,” Sayed said.