INSIGHTS

Duncan Donald

Mon, May 4


Optimism for partial normalization starts to grow throughout Europe and the United States

 

The week began with optimism driving the markets as the Western world finally saw hope that a resumption of daily life could become a reality, and with this and some large US companies shrugging of the expected business downturn, the stock markets soared with the S&P regaining nearly 50% of the virus based drop seen in March, as the Federal Reserve underpinned the markets.

 

Today Italy takes huge steps, as despite being one of the worst affected countries, new cases and deaths have slowed to such a degree that lockdowns have been lifted and sectors of the economy have been permitted to re engage and resume business and social activity, joining many other countries in Europe in doing so. Whilst enormously positive, great caution and monitoring will need to stay in place, as we saw with Germany last week whereby, they lifted restrictions only to see a spike in new cases before resuming lockdown.  Nations will almost certainly tread carefully and follow the statistics.

 

In the US the natives are getting restless, with lockdown protests growing in numbers across 10 states over the weekend. So even despite the US having one of their most deadly days with the highest death rates, it's starting to seem inevitable that restrictions will be lifted sooner rather than later, as President Trump clamors to maintain his populism in the polls. There was further testing on Gilead’s new drug, showing that it perhaps may be more effective which again gave the stock market a boost in midweek.

 

With it having been month end, the inevitable month end rebalancing took place which brought about liquidation of long stock positions and what seemed a readjustment into Euro denominated assets taking the Euro up by around 1%. It came about on the day of the European Central Bank interest rate setting meeting which overall was rather more somber offering little in the way of fresh innovation like the Federal Reserve meeting we had seen the day before.

 

Like the US the UK was later in Covid-19 hitting its shores, and amidst criticism of the speed of lockdown the UK is readying itself for updates and timings of potential resumption of business. It is expected that Prime Minister Johnson will address the nation next weekend delivering his plan to cautiously reopen the economy, with talk that primary schools may reopen in June.  On Thursday we hear from the Bank of England’s interest rate setting committee where it is expected we see a unanimous vote to keep base rate on hold.

 

In the early hours of Tuesday morning we hear from the Reserve Bank of Australia which may prove slightly more interesting, with the nation navigating well from the worst effects of the virus and well on the path to getting the economy moving.  One area of concern that was reported in the press over the weekend, was a potential reemergence of trade and tariffs disharmony, as Trump seems intent on pointing a finger of blame to on one hand deflect culpability for his dismissive approach to early action and safety measure,s and secondly increase his populism ahead of the elections later this year. Because of this, markets traded nervously around the open and on the heavier side.

 

Friday’s US unemployment data will probably be the most significant of the week, it will be no surprise that the data will be in simple terms …awful! The weekly numbers over the last 5 weeks have shown that over 30 million new unemployment claims have been made with it being estimated that 16-17% of the US workforce is out of work, hence the pressures on the government to end lockdown earlier, but what cost to human lives could that bring.

 

The week ahead:

 

Monday:

  • Markit Manufacturing PMI – Eurozone
  • Factory Orders – US

Tuesday:

  • Markit Services PMI – UK
  • Balance of trade – US
  • Markit Composite PMI – US
  • ISM Non-Manufacturing PMI – US

Wednesday:

  • Caixin Services PMI – China
  • Markit Services PMI – Eurozone
  • Construction PMI – UK
  • ADP Employment Change – US
  • Oil Data – US

Thursday:

  • Construction PMI – Eurozone
  • BoE Interest Rate Decision – UK
  • Jobless Claims – US
  • Consumer Credit Change – US

Friday:

  • Gfk Consumer Confidence – UK
  • Non-Farm Payrolls – US
  • Unemployment Rate – US

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