Tensions are running high.  The balance between keeping economies locked down in order to protect the health services, and the desire to loosen lockdown measures in order to lessen the long-term impacts, is coming to a head.

Here in the UK, there has been tentative rhetoric that we are preparing to lift restrictions, but attention has shifted towards accusations that Boris Johnson’s senior aide broke lockdown rules.  All nations will need unity to help with smoothing the economics of a bounce back, and Dominic Cummings’ actions will certainly be an unwelcome spanner in the planning.

In the US, we have already commented on the increasing pressures between itself and China, mainly at the finger of Trump’s Twitter account.  Over the weekend, it was the turn of China’s foreign minister to ratchet up the tension, accusing the US of pushing relations to a New Cold War.  All of this could mean short-term volatility in financial markets.

However, support for markets from both central banks and governments remains significant.  Last week, France and Germany proposed a €500 billion Recovery Fund that would represent a significant step towards fiscal mutualisation in the Eurozone.  What does this mean?  The idea is that the distribution of the Fund’s resources will be based on need, while the burden of the repayment will be based on ability.  This will treat the Eurozone as a whole, with the arguably stronger nations, such as France and Germany taking on greater burden, while less well-off nations, such as Italy and Spain, can benefit from the resources of the Fund.

We knew the route to combat COVID-19 would be uncertain and we appear to be at another inflection point.  While the short term remains unclear for markets, the monetary and fiscal support appears to be the one constant.