The market started the week with a risk on tone as the Fed reassured markets with a pledge to buy US corporate bonds. However, fears re-emerged on Tuesday as a rising number of COVID-19 infections began to be reported across the world. Beijing had cases in 8 of their 16 districts and Texas had their highest number of hospitalisations on Tuesday. This impacted risk sentiment in the week but was partially offset by the reports that the common steroid Dexamethasone is an effective treatment against COVID-19. Most markets kept switching this week between risk-on and risk-off as uncertain headlines pushed and pulled investors.

Key events from the past week

• UK: Dexamethasone, Tuesday, June 16. In a trial led by a team from Oxford University, it was found that dexamethasone cut the risk of death by 33% for patients on a ventilator and 20% for those on oxygen. This is the first effective treatment for COVID-19 and will help boost risk sentiment across stock markets.
• US: Fed keeps spending, Tuesday, June 16. The Fed announced it would be buying corporate bonds. The Fed also showed some optimism this week as US retail sales showed a strong bounce back this week with the Fed saying that the US economy appears to be re-entering the second phase of the re-opening.
• GBP: UK interest rate meeting, Thursday, June 18. The Bank of England kept interest rates unchanged and increased asset purchases by £100 billion. The BoE struck a more optimistic tone that the fall in global GDP was less than expected. The GBP saw some initial strength on the BoE’s optimism as well as Brexit hopes for an EU-UK trade deal as the EU showed sensitivity to UK fishing rights.

Key events for the coming week

• NZD: Bank of New Zealand’s rate meeting, June 24. Expectations are the RBNZ will keep its cash rate unchanged. The Market focus will be on future projections as New Zealand’s economy is the first at full strength post-COVID-19.
• EUR: German Flash Manufacturing, June 23. Will the manufacturing slow down for Germany to continue? First, it was US-China trade tensions and now it is COVID-19 induced slowdowns. However, signs of recovery will be EUR bullish.
• Potential market movers, Headline risks remain. These are from Brexit, US-China trade tensions, China-Australia tensions, headwinds from the ‘frugal four’ on the European Recovery fund, on top of the second wave infection risk from COVID-19. Any of these events can trigger risk-averse markets and JPY/CHF strength.