European Wrap – Recovery Road Full of Potholes

Can markets cope with wobbles?

European stock markets have endured a bit of a mid-week wobble, with indices tumbling on the back of higher reported COVID cases.

There is growing concern about the number of new cases in countries that are in the midst of lifting lockdown measures. The road to the new normal was always going to be full of potholes and reopening will inevitably come at the cost of rising numbers of infections but how this is managed will be key to whether they’ll be a success or lcokdown will return in full.

Germany has been widely commended for its handling of the first wave of the crisis, which will make its handling of the latest increase all-the-more interesting. Authorities in Beijing are already claiming to have its outbreak under control which is quite remarkable given how rapidly it was spreading in its early days.

The more success stories we see, the more comfortable investors will become. Countries have had a lot more time to plan for phase two and they will all undoubtedly be put to the test at some point.

IMF downgrade adds to downbeat tone

The IMF added to the doom and gloom in the markets, releasing its latest global economic forecasts for this year and next. The recession will be deeper this year and recovery next weaker, which won’t have helped lift sentiment across the markets. Granted, the group’s last forecasts came in April which seems a lifetime ago, but it was some downgrade. And with more twists and turns likely, this may not be the last downward revision. The revisions were particularly devastating for Europe, with Italy, Spain, France and the UK all expected to contract more than 10% this year.

Oil accelerates losses in US session

Oil prices haven’t been spared and if anything, the decline has accelerated since Wall Street joined. The moves have tracked those across equity markets which is hardly surprising with the main driver being the increasing number of coronavirus cases. Still, for a group that have been so driven by the stimulus trade, investors have not taken the latest data at all well. In these quite surreal times for markets, I wouldn’t be surprised to see a complete 180 into the end of the week.

Gold forced to wait for $1,800 charge

Gold was doing quite well out of the shift away from risk, that was until the dollar came back into favour in the run up to the open on Wall Street. Now the yellow metal finds itself back in the red, just as it appeared to be embarking on an ambitious run at $1,800. The last time we were talking about this level was 2012, when a third failed run at it in just over 12 months saw gold fall out of favour. That could make it quite the resistance level in the weeks ahead.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at Visit to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

Former Craig

Former Craig

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.