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A Macro Picture for the Summer Ahead

Summer for the trading/investing community is typically characterized by slow market activity and investors taking less risky decisions than usual. Holidays are on everyone’s mind, and the good weather offers a strong incentive to relax.

This summer, though, is a bit unusual. The coronavirus pandemic changed everything, and there is no time to leave the guard down.

U.S. Elections on the Horizon

While still early, the U.S. election is likely to be responsible for the long-term positioning. If we are to see tight ranges and low volatility this summer, the uncertainty of the election result is one of the causes.

One of the major themes of Trump’s presidency was the US-China trade deal. Viewed as a big success by the White House, the numbers do not add up.

For instance, non-petrol goods exports to China declined dramatically, reaching their lowest levels since 2010. It is no wonder both Russia and China are keen for Trump’s reelection, while most of Europe rather not.

Challenging Times for Europe

Another interesting theme to watch over the summer is how the digital tax saga finalizes. The EU threatened to put a digital tax on some US corporations (e.g., Facebook, Google), something the US Government disagrees with. Trump’s administration threatened tariffs on the European auto-industry if the digital tax goes ahead.

Yet Europe has its own internal problems, besides the relation with the United States. As Angela Merkel put it in a recent interview, “for Europe to survive, its economy needs to survive.”

This is especially important as it is coming from Germany – the same Germany that opposed any fiscal integration in the past. Suddenly, it is a big supporter of further European integration, calling for quick steps to be taken.

Wolfgang Schauble, the problematic finance minister during the Euro crisis in 2012, now calls for more European integration, including additional steps towards common fiscal policy and economic union.

The pandemic split the world both politically and economically. We now have Putin’s Russia. Xi’s China, Erdogan’s Turkey – how about Trump’s America?

Summing up, both economic and political factors are likely to create increased volatility in the months ahead, making it an unusual summer trading environment.

The U.S. stock market, as always, will be the first one to reflect any capital changes in macroeconomic trends moving forward. Therefore, to have a clue about risk-on/risk-off during the summer, investors should keep an eye on the U.S. stock market.

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