Duncan Donald

Fri, May 22

As Covid-19 cases fall the markets continue to make inroads to recoup the first quarter declines

Positively, this week saw a continuation of the declining pattern of the spread and new cases of Covid-19 across the globe, with London and the South East of England enjoying their first periods of no new cases.  Whilst continued monitoring remains strictly in place across Europe, to date there has been no secondary wave of new cases, with lock down measures relaxed across mainland Europe and parts of the US, but not yet removed.  


In the UK, where the public had seemed more relaxed in the lockdown status, the better weather is bringing people out of self-isolation and the boundaries are being pushed. There have been press reports that PM Johnson's cabinet could be looking to expedite the lifting of restrictions in the next 10 day which will naturally lift trade and industry across the UK.


Earlier this week we did see talks of a potential COVID-19 vaccine from Moderna, there were reports that they had seen a very positive reaction to human trials. As you would expect this lifted not only the companies share price but most global indices bringing the S&P Index ever closer to the 3,000 level, and sending the safe haven currencies lower. However, as is often the case, further down the week the proposed success was questioned leading to a slight, but not sharp pull back in what seems a bullish stock market that seems to be shrugging off the bearish sentiment of past weeks, as Central Banks continue to promise market support.


Over the last few weeks, the Euro has been under heavy pressure due to concerns over the German Court ruling and the member agreement of the EU recovery fund. This week relief came in the form of agreement between France and Germany for the launch of a 500 billion Euro recovery fund lifting the EUR/USD rate from the lows of 1.0800 on the week to touch 1.1000 before a slight pullback.


Trade tensions continued to be a concern this week, with the Trump administration exercising the blame culture of deflection, although whilst dutifully mindful of this the markets remain unperturbed in the short term. On Friday we saw developments in Hong Kong impact the markets, where developments will need to be carefully watched for market direction, with it starting to shift risk sentiment into the close of the week.


From the Central Banks, we had updates from the Reserve Bank of Australia and Federal Reserve of the United States this week in scheduled policy updates and such is the steady flow of information from all Central Banks the impact of these meetings have somewhat lessened. Macro data also continues to disappoint and whilst leading indicators are at levels not seen in a lifetime, they seem to have lessened in the impacts that would be expected as fiscal and Central Bank stimulus remains the core focus of Market participants.


With many countries being on holiday on Monday it will be a shorter trading week with the key scheduled events being the Financial Stability report from New Zealand on Tuesday, US GDP on Thursday, and Canadian GDP on Friday.


Have a great week ahead


The Week Ahead


Monday - UK and US Bank Holiday. In Germany we get GDP, Business Climate and IFO Expectations


Tuesday - UK CBI data, US Chicago Fed, Consumer Confidence and New Home Sales 


Wednesday - EU Financial Stability Review in the morning then the same data from New Zealand in the Evening. From the US we get the Richmond Fed Manufacturing Index. 


Thursday Confidence data out of Italy and the EU in the morning as well as EU services sentiment.  From The US we get Durable goods, weekly jobless and GDP.


Friday - UK Consumer confidence comes out overnight ahead of Industrial Output, CPI Unemployment, Retail Sales and Industrial Production data from Japan. From New Zealand we get GDP. In the US Session, we get Personal Spending, Trade Balance and Wholesale Inventories