The prospect of further monetary support from central banks pushed global equity markets higher.
However, US-China relations became increasingly strained as the week progressed, weighing heavily on sentiment.
- Global equities rallied at the start of the week on encouraging results from early small-scale human trials for a potential Covid-19 vaccine from US pharmaceutical company, Moderna, hopes that the easing of lockdowns would boost economic growth, and comments over the weekend from US Federal Reserve chairman, Jay Powell, that the central bank would be able to provide further support if required.
- By mid-week, despite a number of experts casting doubt on Moderna’s vaccine claims, the S&P 500 had reached its highest level since early March and the Nasdaq Composite index achieved its highest level since February.
- Concerns over the spread of the coronavirus increased when the number of new cases reached a record daily high with over 100,000 new cases in 24 hours, with nearly two thirds of the cases coming from just four countries.
- US-China tensions escalated further on Thursday as the US Senate had passed a bill which could potentially ban some Chinese companies from listing on American exchanges, and as President Trump posted some inflammatory comments on social media. The following day, Beijing announced it would impose a national security law on Hong Kong, drawing further rebuke from Washington and raising fears of a second wave of pro-democracy protests in the territory.
- Despite global equities retreating as these geopolitical issues developed, markets closed the week higher.
- Investors continued to seek the safe haven of sovereign debt, allowing governments to fund their spending requirements. The US sold their first 20-year bond since 1986, and the UK entered new territory by selling debt with a negative yield.
- Despite the negative yield offered by the UK, demand remained high with the £3.8bn of the three-year gilt with a yield of -0.003% receiving orders for £8.1bn. Five-year UK gilts also ended the week in negative territory as expectations of further monetary support from the Bank of England rose, with the monetary policy committee said to be reviewing the introduction of negative interest rates.
- On bank holiday Monday, sterling became the worst performing G10 currency so far this month, and the third worst performing major currency. The pound has come under intense selling pressure largely due to fears of a no-deal Brexit, with the third round of talks between the UK and EU failing to make any progress.
- In Europe, Germany and France joined forces to encourage a €500bn EU recovery fund to be financed by joint debt issuance in response to the crisis; however, this was met with resistance from some member states, including Austria and the Netherlands.
- Unemployment data continued to highlight the impact of the Covid-19 pandemic. UK unemployment rose to a 24 year high of 2.1m in April with the additional 865,000 jobless claims being the largest increase since records began in 1971. UK unemployment has now reached its highest level since 1996.
- First time unemployment claims in the US rose by a further 2.4 million last week, bringing the total since the outbreak of the pandemic to 38.6 million; on a positive note, the rate of increase in new claims began to show signs of slowing.
- PMI survey data globally recovered from the lows reached in April but remained deep in contractionary territory, marked by a reading below 50. US, Eurozone and UK composite PMI in May rose to 36.4, 30.5 and 28.9, respectively.
- UK inflation plummeted to 0.8% y/y in April from 1.5% in March, the lowest level since August 2016.
- UK retail sales tumbled 18.1% in April, the biggest fall since records began in 1990.
- UK government borrowing reached its highest monthly level on record in April at £62.1bn.
- The Japanese economy contracted in the first quarter at an annualised rate of 3.4%, pushing the country into recession.
- Japanese exports plunged 21.9% y/y in April although this was better than the expectation of a 22.7% fall.
- In China, the National People’s Congress broke with tradition in failing to set a GDP growth target for the first time in its history.
The Week Ahead
|Tuesday||US consumer confidence |
|Thursday||Europe consumer confidence; US GDP|
|Friday||Europe CPI; US inflation; Japan unemployment rate; Japan industrial production |
|FTSE All Share
|Dow Jones Industrial
|FTSE Eurofirst 300
|MSCI Asia ex Jap $
|MSCI EM $
|MSCI World $
|UK Gov 10 yr
|US Gov 10 yr
|German Gov 10 yr
|Japan Gov 10 yr
|Brent Crude ($/bbl)
|$ per £
|€ per £
|¥ per $
Source: FE Analytics, Financial Times, JP Morgan Asset Management
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