When the COVID-19 pandemic began, we all knew that strict lockdown measures in the US and other parts of the world would put major strain on global economic activity. Economic data hit recessionary levels across the globe and investors braced for the worst to come. Then the lockdown measures “worked,” declines in cases prompted countries to ease lockdown restrictions and these re-openings sparked renewed economic activity. For certain countries and some states, the process has been smooth with little evidence of a second flareup. Others are now paying the price of rushed re-openings and there’s a serious risk of a second wave and economic contraction.

Florida reported a whopping 8.942 new cases on Friday. Three of the US’ most populous states reported a record number of new virus cases (they represent more than 25% of US economic activity) and while the White House refuse to tighten lockdown measures to get the new spikes under control, Americans may choose to restrict their own activities which would be enough to slow the recovery. Texas ordered bars to close as hospitals get inundated with patients. Apple announced reclosure of a number of stores (other retailers are likely to follow) and according to Homebase, hours worked are declining steadily in Texas. The point we want to make is that while we are seeing improvements in June data, July numbers could be very different if the number of cases fail to peak quickly.

All of this means that while June non-farm payrolls, ISMs, and consumer confidence numbers are scheduled for release, the most important driver of market flows will continue to be the number of new COVID-19 cases and the number of deaths. They’ve been contained for now but with ICU beds in Arizona at capacity and the same reported at some of Texas’ largest hospitals, the situation could change quickly. The US dollar continues to catch a safe haven bid but if a few weeks from now, the US is the only major economy that has not gained control of COVID-19, the greenback could lose its luster.

Right now investors equate more coronavirus cases with more stimulus. The higher the caseload, the more we’ll hear about new stimulus. Regardless of how the tough the battle will be in Congress, White House officials will reassure investors that a major package is in the works. There may be more market-friendly comments and it will be up to investors to decide what matters more and who to believe. If the case numbers overwhelm everything else, there will be more risk aversion leading to weakness in high beta currencies.

Sterling, the Australian and Canadian dollars fell the most on Friday. No UK economic reports were released today and the death toll and case count are relatively contained so the move in GBP is purely a function of risk aversion. For Australia, investors are worried about this weekend’s Chinese economic reports. The currency is also particularly sensitive to risk aversion. The loonie has been under pressure all week and the losses accelerated as oil prices extended their slide.