Can an earthquake shake the markets?

June 23, 2020 23:18

An earthquake of 7.5 on the Richter scale brings the ghosts of the past back to Mexico and evokes memories of the earthquake of September 19, 2017, which left hundreds dead and damage that still reflects the terror suffered at that time.

Fortunately, this time, Mexico is much better prepared for these events and the damage is minor. There is one death in Huatulco, Oxaca, that we must mourn.

So far, there have been 150 aftershocks and there is a fear of Tsunamis in El Salvador, Guatemala and Honduras.

The tragedy overshadows an otherwise good day in terms of macroeconomic data.

The latest monthly PMI ( Purchasing Managers Index ) figures which we have seen from Germany (44.6 current vs 36.6 previous), the USA (49.6 current vs 39.8 previous) and the UK (50.1 current vs 40.7 previous) brings welcome support and stability for the equity markets.

The numbers mean that the UK is once again in a confident economic mood and Germany and the US are close to it, with a rate of recovery that has not been seen for many years.

Consumption is rising again and this is vital for the US and Germany, as in both cases it represents a large chunk of GDP. In the case of the United Kingdom, this is good news but matters less, as it a more international market (more than 60% of the income generated by the companies in the FTSE100 is generated outside the country), but any economic revival of other countries in the European Union and manufacturing growth in the United States, should benefit the UK economy enormously.

As for the effects of the earthquake, we will be very attentive to movements in the oil market, as this could generate a lot of volatility for an asset that was already approaching important levels of short-term resistance, where we continue to see a significant accumulation of downwards pressure. At the moment, it is difficult to break through levels, we will see in the short term what impact this inevitable disruption brings.

Source: Admiral Markets MetaTrader 5. Gold Monthly chart. Data range: from Nov 11 2019 to June 3th, 2020. Prepared on June 23, 2020, at 9 pm. Please note that past performance does not guarantee future returns.

We will also have to watch for movements of the major metals - especially Gold, as it functions as a safe haven asset and should perform well in the short term. We currently see it at session highs and breaking previous highs and short term resistance.


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