Home > A Quick View at Major Asset Classes

A Quick View at Major Asset Classes

August 13, 2020 By Mircea Vasiu

Now that Q2 2020 is behind us, investors and traders have an idea about how big the impact on the world’s economies was during the pandemic. Is it likely to see general lockdowns in the future? Not quite.

The United Kingdom’s economy contracted by more than 20% in the second quarter. The Eurozone, the United States, Canada, and Australia – they all suffered major economic blows. Emerging markets had their own problems even before the pandemic, and now have an even harder time to recover.

But new lockdowns further down the road are unlikely. The economies will not shut down again for the simple reason that the medical system got its act together, scientists and researchers get to know the disease better, and some treatments to ease the coronavirus health effects appeared.

How should investors position themselves in a world that learns to live with the virus?

Crude Oil

Oil prices are stuck in a tight range close to the $40 area. From a technical point of view, oil sits at resistance and forms only marginal higher highs (possible rising wedge formation). Demand for oil is on the rise but remains sluggish.

With globalization taking a hit, the price of oil is unlikely to go much higher due to fewer goods being shipped around the world. The shipping industry is one of the major oil-consuming industries.

For this reason, many investment houses updated their year-end target for oil close to the current $40 level.

FX

The USD remains offered. Any bounce so far was limited, with the USD suffering from a risk-on trading environment. Such market behavior appears especially during the summer trading months, and this summer is no different.

Euro remains a good prospect, but more upside above 1.20 is limited due to it becoming a burden for the European economies.

If there is a currency to watch for during this period, that is the British Pound. The Brexit negotiations are still ongoing, and any surprise there (positive or negative) will send the GBP’s volatility higher.

Equities

The earnings season so far showed strong resilience to the economic downturn. In the second quarter of the year, the U.S. corporations reported strong numbers, with many surprises to the upside. The guidance, therefore, was raised, pushing equities even higher.

If we consider the low returns offered by the fixed income market, equities are the only ones left to provide a higher yield. With central banks around the world keeping their foot on the money printing press, look for equities to march towards new all-time highs.