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Sentiment Struggles Amid Concerns of 2nd Wave of Infections

European bourses are pointing to a mixed start as investors continue to weigh up the reopening of economies against the prospect of a second wave of infections and amid strained trade relations, but rebounding oil prices. 

Whilst President Trump has shut the door to the renegotiation of the Phase 1 trade deal terms, China has banned imports of meat from Australia. Strained US – Sino and Sino – Australia relations are dragging on sentiment.

With Germany’s covid-19 reproduction rate, R, now at 1.07, South Korea scrambling to control an outbreak linked to a nightclub in Seoul and China with its first infection in Wuhan since restrictions were lifted, investors are fretting over the possibility of a second wave of infections. That said, New York, the epicentre ion the US is now ready to reopen. As an economic and financial hub, this carries some weight and helped pull the S&P into a positive close on Monday.

The market has clawed back around 50% of March’s losses. Whilst economies are gradually reopening which is a positive, it is become increasingly clear that no quick bounce back is on the cards. This will be a rocky road to recovery and not one that is always pointing higher. 

Oil jumps
Whilst fears of a second wave of infections are causing some unease in the markets, oil prices are a rare source of light. Oil has jumped over 1.2% in early trade following an unexpected commitment from Saudi Arabia to cut oil production to drain some of the global oil glut. A bullish production cut of 1 million barrels per day by Saudi Arabia means that the oil producing giant has cut production by some 40% since April. The move could also go a long way to encourage other OPEC nations to comply with their cut quotas. 

Whilst the cut was overshadowed in the previous session by fears of a second wave of infection, data showing that oil storage had dropped in the US’s largest oil storage at Cushing, Okla, by 2.17 million barrels offers some breathing space amid swirling storage shortage fears.

With supply now being addressed and demand slowly picking up as economies reopen, the worst appears to be behind us. API data will be in focus. Last week’s data showed a rise of 8.4 million barrels.

WTI Chart

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