After April saw global markets soar to their highest monthly returns, they were brought back to earth just as quickly as May came in to land.
It was an especially tumultuous time for airlines on Monday, after billionaire investor, Warren Buffett, said that his Berkshire Hathaway investment vehicle had offloaded its entire stake in carriers last month, only adding to the sense of crisis surrounding the industry. “The world has changed” for the aviation industry, Buffett said at Berkshire Hathaway’s AGM, citing travel restrictions and government-mandated lockdowns across the world which have since brought flight demand to a virtual standstill. Unsurprisingly, it was airlines that were hit hardest on Monday with American Airlines and United Airlines falling more than 13% after the start of trading. UK carriers such as Easy Jet and BA parent IAG also faired equally as poorly.
Whilst aeroplanes remained grounded, it was still chocs away for oil as crude futures rose over 20% on hopes that vehicle traffic would state to pick up as the US and Asia moved to ease lock downs. Across Europe, oil majors dragged their respective indices higher, with Royal Dutch Shell and BP in London, Total in Paris, Eni in Milan and Repsol in Madrid the continents top performers. The USD also flew, lifted by better-than-expected US services data. The greenback’s gains were also supported by U.S. President Donald Trump’s baggage over how the COVID-19 virus spread. Attacking China by stating that there was proof its genesis was in a Chinese chemicals’ lab, the man in the White House made a direct attack on Beijing, stoking fears of another trade war between the two nations.
On domestic shores, the government received clearance from investors to borrow at just 0.5% in a 30-year debt auction during Wednesday, the lowest-ever yield at an auction for a conventional British government bond with a maturity of more than 10 years. It was all systems go as investors, looking for any kind of risk-free return on their savings clambered for the debt. Oversubscribed by 2.6x, the average successful bidder will receive an annual yield of 0.495%.
Unsurprisingly, Thursday saw the Bank of England vote 9-0 to keep rates in a holding pattern, a destination that could continue for the foreseeable.
The week ahead
The front-loaded bank holiday means that the coming Monday will be a usual working day, or as close to one as possible during the current climate. However, with the government set to announce new lockdown measures on Sunday, any actions could set the tone for the coming week.
From the City of Westminster to the City of London, Monday sees the Bank of England release its quarterly bulletin, covering its views on an economy ravaged by COVID-19. This release will include commentary on market developments and monetary policy operations, along with reports on a range of domestic and international economic issues, most notably around the outbreak of the Coronavirus.
As we progress through the week, all eyes will be on the US economy as the Bureau of Labor Statistics releases inflation data. With last month’s reading having shown that prices fell by 0.4%, we could be in for more bad news as the easing in lockdown measures in the States do not come in time to affect Tuesday’s data.
Inflation data should go hand in hand with Friday’s US Core and Non-Core Retail Sales figures. Non-Core strips out automobile sales, which usually account for around 20% of all sales due to their much higher value. However, they tend to be very volatile and distort the underlying trend, adding value to the core data which should provide us with a much more even gauge of how the US consumer is feeling and how they are spending their income.
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.