Morning Brief – Pandemic Politics

Pandemic Politics

Before looking at how the concerns surrounding the surge of Covid infections in China are affecting the markets, a brief word on how they are behaving in general. In FX at least, there is a very different feel to price action and liquidity conditions. Most of 2022 provided very volatile conditions with stretched valuations being a feature in many major currency pairs. Despite that volatility, markets remained relatively tight and bid vs offer (buy vs sell) prices across pairs didn’t blow out massively as we have seen in the past. That’s a great credit to the developments in the market particularly technology allowing for more dependable trading conditions. The main feature of 2022 could be summed up as you snooze you lose: the price now will expire very quickly but due to the depth of the market and liquidity remaining tight, another fair but likely very different two-way price will be there immediately to execute. 

However, throw those kind of conditions which are largely still afoot alongside the festive season and there are some cracks starting to show that I could imagine getting wider in the coming days. Unlike most of 2022, this festive period has not seen the same kind of price swings we have become so accustomed to. Prices yesterday for much of the trading session were stable enough to rest your chosen Christmas beverage on without fear that it might topple over. This was the case mostly for intra-minute or second pricing where low volumes drove more stable prices in the absence of any major data or headlines. That was of course until the market began to digest how governments were reacting to claims of a rapid importation of Coronavirus infections from visitors from China. 

Risk conditions suddenly deteriorated whilst the latest pandemic episode played out leaving USD with some of its recent weakness to recover. A very tranquil day suddenly saw USD grab back up to a cent versus the Euro. Today and tomorrow’s sessions are likely to continue to show such stability within short-term price action but any developments within pandemic politics could continue to destabilise recent trends. I call it pandemic politics because it seems just that. The UK’s laissez faire attitude, born out of the aftermath of Boris’ party gate scandal continues to endure. The UK has stated it will not be taking additional measures against arrivals from China. Many European nations including notably Italy who has claimed some 50% of arrivals from China are testing positive for the virus are looking to increase measures to prevent the virus being imported. The US also has reinstated some pandemic era policies on China. The politics of a pandemic have not been dissimilar to the pandemics of war: restrictions look like sanctions and behave in a largely tit for tat way. USD could be open to further upside corrections if pandemic politics show signs of escalating with any price movements exacerbated by the trading conditions we currently face. 

Discussion and Analysis by Charles Porter

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