The Short Squeeze: How COVID-19 is affecting global markets this week

Sponsored by IG
·3-min read

From surprising good news to more uncertainty, the world’s markets are reacting to coronavirus in different ways.

If you want to know what to expect from the financial markets this week, but don’t have time to sift through the news to set yourself up for the trading week ahead, plug in to The Short Squeeze podcast. Hosted by The Age’s Lucy Battersby, who is joined by IG market analyst, Kyle Rodda, it fills you in on everything you need to know about the latest in the world of financial markets.

This week, Kyle and Lucy compare the fortunes of different countries in relation to COVID-19. Australian companies have reaped unexpected side effects of working from home, and the US economy is looking up. Meanwhile, the European Central Bank is reflecting fears of a double-dip recession. Here’s how COVID-19 is currently impacting global markets:

Australian companies are attracting new investors

While COVID-19 has caused economic havoc across the world, there’s been one upside for Australian companies – more investors. Before coronavirus changed the way the world does business, some institutional investors had rules that they could only invest in a company if they’d met management personally. This meant lots of investors weren’t putting money into Australian companies, simply because it was too hard to get to this part of the world. But travel bans and increased virtual working has meant those old rules have fallen by the wayside. Now we’re getting overseas investors who are interested in the Australian market for the first time, which is a great way to inject more cash into the economy.

European fears of a double-dip recession

Several central bank meetings will take place this week, but all eyes are on the European Central Bank, as second and third COVID-19 waves result in lockdowns being rolled out again in Germany, France, Italy and the UK. Kyle suggests these new lockdowns have started to weigh heavily on the ECB’s mind, and there’s major concern that there will be a double dip recession. Although there’s not expected to be any policy adjustment this week from the ECB, there are whispers that they may have to extend the Pandemic Purchasing Program which was put in place to support the Euro zone. If this happens, the markets will be propped up for a while longer – but who knows how long it can continue.

There’s a big GDP lift in the US

The US is expected to announce a 32 per cent expansion when they release their GDP figures later this week. This huge swing shows a V-shaped recovery story for the US economy, after their contraction of 31.4 per cent last quarter. The figures are reflective of the country’s lockdown, then its subsequent re-opening – in spite of the recent 80,000 cases in one day. This massive bounce will be particularly interesting in the context of the US election, points out Kyle. The markets have been stabilising as a Biden victory looks to be on track, but with figures like these, Trump will be bound to be selling this ‘recovery’ story far and wide. Does it have the potential to sway undecided voters? Only time will tell.

IG is committed to educating traders to be informed about the global financial markets.

Listen or subscribe to The Short Squeeze every week.

The information above does not contain (and should not be construed as containing) personal financial or investment advice or other recommendation, or an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of the above information.