The tone for the past five days was set as early as Sunday evening this week, as Prime Minister Boris Johnson addressed an expectant nation on the latest phase of lockdown easing. With many political commentators labeling the new rules confusing and inconsistent, the week’s market movements reflected what has become a quandary for most global leaders about how to return their respective nations back to normal.
Global equities were certainly mixed during the week as Monday saw investors weighed jumps in COVID-19 cases in Germany and South Korea with optimism over the US emerging quicker from lockdown than had been expected. With safe haven government bonds making modest gains, global stocks remained flat, falling just 0.04%, reflecting the state of vacillation investors were suffering.
With the tech-heavy NASDAQ benchmark now just at 10% off the highs it reached in February, increased worries over the impact the Coronavirus was having on the global economy, it was only right that more defensive stocks had their moment in the sun with the remainder of the week seeing sectors such as telecoms and pharmaceuticals outperforming. An upbeat trading report from Vodafone caused the company to jump 8.7% as it retained its dividend, bucking a corporate trend to cut or scrap payouts altogether due to the Coronavirus crisis, whilst also meeting expectations for full-year core earnings.
Perhaps the biggest call this week was made on Threadneedle Street as the Bank of England (BoE) declared that it is not considering negative rates. Unlike his US peers, new Governor, Andrew Bailey, said it was never wise to rule anything out but moving the BoE’s benchmark rate into negative territory would be a “very big step” and would require “an extensive communications exercise.” Currently, rates sit at all-time low of 0.1% having already been cut in March to combat the effect of the Coronavirus on the domestic economy.
The week was rounded off on a positive note as Europe and US markets took heart from better than expected Chinese factory data. Oil also jumped on the news, rising to its highest level in a month. Data showing China’s industrial output in April rose 3.9% from a year earlier, expanding for the first time this year, overshadowed growing tensions between the world’s two largest economies as US President, Donald Trump, refused to rule out trade tariffs over China’s handling of the COVID-19 outbreak.
The upcoming working week kicks off with data focusing on those who aren’t in work, with the Office for National Statistics releasing its Claimant Count Change data.
The ongoing effects of the outbreak of COVID-19 should be clear to see in the data, which describes the change in the number of people claiming unemployment-related benefits during the previous month. Although the numbers are generally viewed as a lagging indicator, the number of those unemployed is an important signal of overall economic health because consumer spending is highly correlated with labour-market conditions. Unemployment is also a major consideration for those steering the country's monetary policy, giving added impetus as central banks start to consider negative rates. The data is also released in conjunction with Hourly Earnings numbers, which again should make for interesting reading given the state of the current labour market, with analysts predicting a third of the UK work force is now on furlough.
The middle of the week will see what the central bank makes of all the data as Andrew Bailey, the Governor of the Bank of England, is due to testify, along with three other members of Monetary Policy Committee, in regards to the economic impact of COVID-19 before the Treasury Select Committee. As Mr Bailey is directly responsible for monetary policy, his words are often analysed to a fine degree for hints as to future policy. Consequently, we can expect heightened volatility surrounding the pound on Wednesday.
The week should be rounded off across the Channel as a host of major European economies release both their Manufacturing and Service PMI data. Analysts will predominantly focus on the two largest, France and Germany, as they comprise the majority of the Eurozone’s economy.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in May 2020.