What awaits the most popular financial markets this year?
Q: What do you foresee the best-performing markets to be in 2020?
A: In the current climate it is very difficult to identify the best-performing markets for the rest of the year, given the strong hit from the Covid-19 outbreak during the first quarter. A market fallout such as the one we have recently witnessed often provides good investment opportunities, if investors make the right decisions at the right time.
The gold market is perhaps one of the most promising markets this year, when looking at it from a historical point of view. The precious metal has been used as a safe-haven asset for centuries during times of market panic and uncertainty. Some investors prefer to hold cash amid a crisis such as the one we are currently witnessing. However, the fear the disease is spreading is also causing investors to turn to gold as a refuge, as global equities could take a long time to recover.
We have also seen production shortfalls in both palladium and platinum. However, these are now being used in catalytic converters attached to vehicle exhausts to reduce harmful engine emissions. This may help both metal prices rise again, and perhaps reach record highs before the end of the year. If there is a strong recovery of the auto market, there is a risk miners may not be able to meet the soaring demand, as the prices of the two precious metals are pushed higher.
Q: How will the coronavirus continue to impact the global economy?
A: This will depend on many factors, specifically how long the lockdown will last in different countries around the world. The speed of the treatment and new vaccine developments related to Covid-19 will also have a great impact. The longer quarantines are enforced the greater the impact will be on global economies. Countries abilities in dealing with this respiratory disease will also have an effect on financial markets, as global economies are highly sensitive to economic crashes.
The undergoing stimulus plans adopted by global governments and central banks can only help markets alleviate the impact of the Covid-19 outbreak for a short while, but their positive impact is likely to soon fade and markets could turn red again, especially for the stock market.
The economic damage for certain sectors could be more severe than others, most notably tourism, carriers and household services. It is predicted that these sectors could take longer to recover. If Covid-19 pushes the global economy into a recession in 2020, a recovery would be unlikely to take place before 2021.
Q: What will the job market be like in the U.S. going forward?
A: With the rapid spread of the coronavirus in the United States, millions are predicted to lose their jobs despite the massive stimulus plans announced by the US administration, and therefore resulting in significant increase in the unemployment rate.
If the virus continues to spread, preventing the US economy from going back to work, it could lead to the loss of many jobs. The latest initial jobless claims showed that more than 3 million Americans lost their jobs and filed for benefits last week.
Jobs associated with healthcare, loading and storage in warehouses could rise more in the coming period, but, then again, jobs related to restaurants and the foodservice industry, in addition to airlines and travel will witness dramatic cuts and will take longer to recover.
Q: How will the trade deal continue to impact financial markets?
A: There is no doubt that the trade agreement between the two largest economies in the world (China and America) had a strong impact on the global economy until the Corona pandemic emerged to dominate the world’s markets and economies.
As it is clear that relations are still fragile, despite the signing of the first stage of the deal, and moving forward to the second stage will be difficult, especially as the US accuses China of a slow response and action to deal with the virus spread.
If the trade relations between the two countries deteriorate further, the effect of the trade agreement may become almost non-existent and the financial markets will be more negatively affected. The damage in stock markets would be severe as financial markets cannot withstand a trade war while they have not yet recovered from the impact of the coronavirus outbreak.
Q: How will the UK/European economy now be impacted by the Brexit?
A: The impact of the Brexit without a good trade deal between the UK and the EU would have a devastating economic impact on both sides, with a harsher effect on the British economy, which may shrink 15% in the second quarter of 2020 as a result of the Covid-19 outbreak.
Higher cost of inputs and outputs from the EU would raise the price of the products imported by the UK, and this would exert more pressure on households, who are already adapting their spending habits to deal with the coronavirus.
The euro nations, on the other hand, are currently on the brink of another debt crisis due to the current fragility of the euro’s largest economies – Germany, France, Italy and Spain – and therefore the UK exit would add a further negative impact since Britain is a key trading partner to many eurozone countries. The UK’s exit could also result in a 75-billion-euro gap in the EU’s budget and could examine the EU’s ability to manage another economic crisis without collapsing.