New COVID-19 outbreak in USA and Europe
Drop in oil prices
Growth of the dollar
In recent days, the volatility of major financial instruments has increased significantly. At the same time, the main drivers of the movement were the news not from the USA, but from Europe. Investors were anxiously watching the statistics on the coronavirus pandemic spread across the EU countries.
To curb the rapid growth of the pandemic the leading EU countries (Germany, France, Italy, Spain, etc.) decided to strengthen quarantine measures. Earlier leaders of these countries repeatedly stated that they would not allow a new lockdown as it would have a crushing effect on the economy. But against the backdrop of an active second wave of the pandemic, the governments of these countries are forced to announce new restrictions, which will have a negative impact on the economy.
On Friday, the head of the Bank of France has already announced that new quarantine measures will lead to a reduction in France's GDP in the 4th quarter. It is obvious that the same fate awaits the economies of other EU countries. Many were not ready for such a development.
In the USA, the epidemiological situation also remains difficult. According to the latest data, 41 out of 50 states have record numbers of sick people per day. Obviously, the new wave of pandemic will increase the pressure on the U.S. economy, which in the 3rd quarter showed a record growth rate since 1947 -33.1%.
Sad news from Europe has significantly weakened the position of European currencies. Over the past months, the control of the virus has allowed the economies of EU countries to show good recovery rates. Many experts noted that a more positive epidemiological situation in the EU countries, compared to the United States, will contribute to a faster recovery of the region's economy. The new virus outbreak came as a complete surprise not only to investors, but also to EU governments. Many experts predicted an increase in infection rate in the fall, but few expected a second wave of the pandemic to spread at a faster rate than in the spring. A record number of cases are registered almost daily in many EU countries.
New COVID-19 plowing significantly reduces the prospects for the EU economy. Obviously, we will see a review of short- and medium-term forecasts in the near future. The European currency, quite logically, is responding to this decline. The British pound has also found itself under pressure.
As a result of the ECB meeting on Thursday, the regulator left the main parameters of monetary policy unchanged, but the regulator gave a clear signal to the market to soften monetary policy in the future. In her speech, Christine Lagarde stated the need to increase stimulus measures and expand the asset buyback program. The final decision will be taken by the regulator at its December meeting, to which new forecasts of the region's economic development prospects will be prepared.
At the end of the week, the main beneficiary of the deteriorating epidemiological situation was the US dollar. Many investors traditionally consider the dollar as a protective currency in conditions of growing economic and political uncertainty.
Precious metals market
Gold updated monthly trading lows during the week. This market reaction was related to the strengthening of the dollar, with which precious metals has a close inverse correlation.
The new virus outbreak in Europe and the USA significantly reduces the prospects for the development of the entire world economy and the recovery of energy demand. As a result, prices for major oil grades ended the trading week with a drop of more than 7.5%.
The major stock indices close the trading week in the red zone. Investors have been selling risk assets not only because of the deteriorating epidemiological situation, but also because of uncertainty in the run-up to the U.S. presidential election.