The second wave of the pandemic is a reality in an increasing number of places in Europe – France, Spain and Belgium in particular see rapid increases in cases. However, even in relatively quiet Germany, nervousness is growing – Angela Merkel spoke at a closed meeting of the ministry yesterday about the fact that Germans can see up to 19,000 new cases a day by Christmas.
Against the background of the second wave of the pandemic, stock markets recorded a fourth week of losses in a row, and as Friday and Monday’s trading showed, prices are already beginning to be attractive to some buyers. It may also have helped that the latest wave of business sentiment in Europe did not look threatening yet. While services are logically bleeding, the industry is surprisingly resilient. However, there is definitely no reason for great optimism yet. Despite the significant differences between industry and services, however, the picture of the euro area as a whole does not look encouraging – the aggregate PMI fell to 50.1 points for the second time in a row. This week’s details are also likely to show regional differences between Germany and the countries fully affected by the second wave of the pandemic.
In the face of the second wave, investors will also closely monitor the development of state aid to economies. Many temporary assistance instruments will gradually disappear and it will be important to monitor how generous programs are prepared for the second wave. In the Czech Republic, attention is focused mainly on the new form of kurarbeit, which is to replace the running Antivirus programs. The government’s proposal to the Chamber of Deputies is in many respects the target of criticism, especially among employers who do not like the high participation through social and health insurance payments.
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CZK and bonds
Emerging markets currencies are under pressure, even though stocks are doing relatively well. The tension started by the second wave keeps the koruna above 27.20 EUR / CZK. From the domestic events, nothing in the mood could fix it in this shortened week. We expect a worse PMI and a neutral minutes from the CNB meeting.
Foreign forex
The Eurodollar remains close to 1.17, although the sell-off in emerging markets continues. The euro is still suffering from the second wave of the epidemic in the eurozone, which is leading to very low inflation and aggressively dovish comments, such as the one yesterday by ECB President Lagarde.
Today, in addition to German inflation and other comments from Fed central bankers, it will be interesting how the Eurodollar will behave during the first debate of US presidential candidates. Donald Trump and Joe Biden will compete in the first of three television debates tonight.
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