The body of a Covid-19 victim is wheeled to a medical centre in New York in April. The United States' response to the coronavirus has been a shambles. Equity and currency markets will continue to see contrasting market performances in line with how countries and regions manage this crisis. File photo: AFP.

Chinese markets are on holiday for the Dragon Boat Festival. So we can only guess how they might have reacted to Wednesday’s US equities sell-off.

Most likely the reaction would have been muted, much as today’s action in European stocks so far. 

The United States has put on display an absolutely incompetent and irresponsible policy and technical response to the coronavirus crisis to date. Three of the most populous US states – California, Texas and Florida – are showing record numbers of new infection cases.

But that’s the US.  China, most of East Asia and most of Europe have coped well. Apart from controllable (and controlled, as in Beijing recently) localised clusters of virus resurgence, Covid-19 no longer stands in the way of economic recovery.

I expect that in equity and currency markets we will continue to see a differential market performance broadly in line with the difference in US vs. EU and China coronavirus status.

Note that while US markets were down between 2.5% to 3% yesterday, most European markets are flat to up today.

The US dollar, in response to the sharp risk-off move in the US overnight rose, with the DXY currently at 97.4350, up 0.3% from Wednesday. But I see that as a minor correction. The dollar will continue to be weak because of the expected weakness in the US economy and inability of the US to get the virus crisis under control.

CNH, the offshore yuan, lost ground compared to yesterday in line with the DXY rise and traded at 7.0852 at 7pm HK time.

Where US dollar and equities will go tonight depends on the US jobless claims due out today. Last week’s 1.5 million claims disappointed to the upside. 1.3 million are expected for tonight’s claims numbers.

The reason for very close inspection is that the number should give an indication of the extent to which the US second-wave outbreak is impacting economic recovery and hence the market’s performance going forward.

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This report appeared first on Asia Times Financial.