The mood in the financial markets’ has again been tarnished. The S&P500 lost 0.56% on Thursday and futures declined by another 0.5% on Friday morning, almost offsetting the growth from the beginning of the week. Chinese markets are also showing a corrective rollback on Friday. As a result, on Thursday the dollar turned to growth, and on Friday morning there is still a high demand for it. The renminbi returned to the area above 7.0 per dollar, whilst AUDUSD retreated from 0.7000. EURUSD lost 100 points, falling to 1.1260 and once again failed to test the resistance at 1.1400. Gold also dropped below the round level of $1.800.

The reasons for the pessimism of market participants can be explained by the coronavirus statistics in the U.S.A., as the situation there significantly affects market sentiment. In the previous two days, more than 60K new infections were recorded in the United States. This wave of infection started growing about a month ago, but only in the last three days has the number of daily deaths almost doubled to the level of about 1000 people per day. Market sentiment in recent days is quite correlated with death rates. Without much of an increase, investors had hopes that the number of infections is caused by more extensive testing and that doctors are able to treat the virus more effectively.

Although the medical system has become much more prepared, its resources are not infinite. It is forcing officials in various U.S. cities and beyond to return restrictive measures. The tracking of mobile phone traffic has already noted at least a small recovery in industries since early July.

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Additionally, negative market sentiment is supported by the Fed’s balance-sheet contraction, which last week broke 11 year records. As in previous weeks, such dynamics is due to the fact that other central banks return dollars to the Fed via swap lines. Nevertheless, the Fed’s balance sheet acts as a kind of indicator of the level of liquidity in the financial system, and its fall puts pressure on the optimism of the players. This is especially noticeable at a time of increased anxiety around a new pandemic wave and its associated economic consequences.

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