Market Update May 2020
Posted: 22nd May 2020 | Share
By Sarah Ryman
Where to now…?
By Sarah Ryman
Boris is back in the hot seat at Number 10 and welcomed a new son into the world, just as he announced that the UK has moved “past the peak” of the coronavirus outbreak with over one million virus recoveries recorded. This news came in as virus testing opens up for millions, antibody tests are now available and lockdown measures are being lifted meaning Swiss grandparents are now able to cuddle their younger family members.
75 years after Victory in Europe (VE Day), the formal acceptance by the Allies of World War II of Nazi Germany’s unconditional surrender of its armed forces, we are once again reminded of the importance of united endeavours and the power of good over evil.
The Bank of England (BoE) has forecast that the impact of coronavirus will push the UK economy into a historically large recession with output dropping 30% over the first half of 2020 but did not launch new stimulus this month. The central bank highlighted that unemployment was likely to rise to 9% even with the government’s retention scheme protecting many employees and that inflation would dip to 0.5% in 2021 before returning to the 2% target the following year. CPI fell to 0.8% from 1.5% in March, the Office for National Statistics (ONS) said. GDP shrank 5.8% in the first quarter of 2020 which, whilst expected by the markets, was the fastest paced fall since the financial crisis. The governor Andrew Bailey highlighted that the BoE were “not contemplating” negative interest rates but only a week later commented that negative rates were under “active review”. We saw the UK government sell their first bond with a negative yield confirming that investors are prepared to pay to hold government debt. Should the BoE introduce negative interest rates this would be the first time in its 324-year history in an effort to help stimulate an economic recovery.
The European Central Bank (ECB) has eased the conditions on cheap loans for banks and launched a new package of ‘pandemic’ lending in its latest bid to shore up the Eurozone during the Coronavirus outbreak. Data released this month has showed that the area’s economy shrank at the fastest rate in its history during the first quarter of 2020. The Pandemic Emergency Purchase programme (PEPP) will launch a €750 billion bond-buying scheme with the aim of pumping €1 trillion of bonds into the market this year. The ECB left rates unchanged at negative 0.5%.
The Eurozone private sector suffered its worst month on record in April as coronavirus lockdown measures caused consumer demand to all but evaporate, survey data has confirmed. The closely watched IHS Markit composite purchasing managers’ index (PMI) plunged to 13.5 in April from 29.7 in March, which was the previous record low. Anything below 50 demonstrates that the sector is in contraction.
The French president Emmanuel Macron along with German Chancellor Angela Merkel have now unveiled a proposal for €500 billion EU ‘recovery fund’ to help the European economy.
Jobless claims in the US have skyrocketed this month as unemployment surges despite unprecedented fiscal and monetary stimulus. The government has passed bills worth around $3 trillion whilst the Federal Reserve has slashed interest rates and pumped trillions of dollars into the economy but stopped short of a retention scheme which has kept unemployment from ballooning in countries such as the UK and Germany.
The US economy shrank 4.8% in the first quarter of 2020 and rates were kept on hold at their current record low levels signalling that they will stay at 0-0.25% until “the economy has weathered’ the coronavirus outbreak. The Fed said coronavirus “is causing tremendous human and economic hardship”. It added that it “poses considerable risks to the economic outlook over the medium term”.
Beijing has announced that it would abandon setting a GDP target for the first time as the country faces its most severe economic downturn for four decades. Stock markets have tumbled after the Chinese government said it planned to impose a national security law on Hong Kong in a move that has ignited fears over further protests and raised questions over whether the city will remain a financial hub of the future.
We hope that you and your families stay well,
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