Duncan Donald

Mon, May 18

As Covid-19 restrictions lift the spotlight falls on the strength and duration of the recovery

Finally as daily infection rates around the world fall,  people can start to think about getting their lives back on track from the lockdown status, but the big question remains the same, how long will it take the economy to recover from this? 

Whilst the Central Banks across the world have pumped the all-important liquidity to bolster markets either via quantitative easing or direct interest rate cuts. This stimulus stemmed the freefall in the short term, before progressive daily infection rates stepped in and further brought relief to the markets as speculators priced in a lifting of some of the extreme lockdown restrictions. We could however have the all too typical “buy the rumor sell the fact” scenario, with the markets unwilling to push on and make new highs despite physical evidence of progress. Whilst many people can exercise more, see slightly more family and, in some countries return to work, the reality lies that the return to normal working and social conditions remains a long way off, and that the Central Bank and Governmental fiscal resolve will again be tested.

Last week was certainly not short of Central Bankers using the line “we will do whatever it takes”  even as typical stimulus measures get to the point of exhaustion, in the US Jerome Powell keenly ruled out the use of negative interest rates, claiming they would not be the most effective way of dealing with the issues. In the UK the Bank of England’s Haldane got sent the already weakened Pound after a tough week with the reengaged Brexit talks, lower at the Asian open after talking about the consideration of negative interest rates. Whilst he did not explicitly say lower rates are coming, the perception remains that the door is open.

With stocks inflated due to the stimulus and continually terrible macro data, it has brought high level investors such as Mark Cuban to the opinion that the V shaped recovery will be more prolonged with a real possibility of down before a more protracted recovery in the stock market. The last week has again highlighted the fragility of the US/China trade agreement with the Trump administration again seeming intent on a deflection campaign to mask their delayed reaction to the virus and lockdown, whilst trying to get the public on their side ahead of the election.

As risk has changed footing with safe haven currencies becoming more favored, the US Dollar had a strong week last week, in particular against the UK’s Pound and the Euro. In Europe there were concerns after Germany saw a slight increase in cases after the lifting of lockdown, with the German court ruling over the ECB’s stimulus still fueling fears of an EU rift.  

Naturally, as we have become accustomed the week will be watching the daily Covid-19 cases updates, with particular consideration given to any surge in cases where we have seen lockdown relaxations. On Tuesday night we hear from the Reserve Bank of Australia on monetary policy then the Federal Reserve on Wednesday. 


The Week Ahead: 



  •       GDP Growth – Japan
  •       Housing Market Index - US


  •   Industrial Production – Japan
  •   Unemployment Rate – UK
  •   ZEW Economic Sentiment – Ger
  •   Housing Starts – US
  •   Retail Sales - US


  •       Machinery Orders – Japan
  •       RPI – UK
  •       Inflation Rate – Eurozone
  •       Oil Data – US
  •       FOMC Meeting - US


  •       Markit Manufacturing PMI – UK, US
  •       Jobless Claims - US


  •   Markit Manufacturing PMI – Fr, Ger, Eurozone