Market Round-up 25-29 May

Thomas Watts


This week

After a truncated week due to the Spring Bank Holiday, it seems global markets really sprang into life as investors seemed to shrug off a growing rift between the US and China, focusing instead on the prospects of a world economic recovery as more portions of daily life were relaxed from lockdown.

The beginning of the week saw global bourses rise strongly, predominantly spurred on by rising oil prices on growing confidence that producers are following through on commitments to cut supplies and fuel demand has picked up. A reduction in lockdown measures also allowed airline stocks to soar with a 6.9% surge in the travel and leisure sub-index. On Wall Street, shares in American Airlines and United Airlines rose more than 15% with cruise ship operators also joining the party. Europe did not miss out either as Spain said quarantine-free tourism would resume next month and Germany edged toward a €9 billion bailout of airline Lufthansa.

More positive news was to come for Europe as Wednesday saw a €750 billion plan to prop up EU economies hammered by the Coronavirus crisis announced. Under the proposal, the European Commission would borrow the funds from the market and then disburse two-thirds in grants and the rest in loans, with much of the money going to Italy and Spain, the worst affected by the pandemic. Unsurprisingly, it was those two nations’ indices that jumped the most with Spain’s financial-heavy IBEX dragging the broader EuroSTOXX600 up by 1.1%.

Whilst a slew of good news washed over markets this week, bubbling under the surface was a reemerging rift between the world’s two largest economies. Tensions between Washington and Beijing had return to simmer since the outbreak of the Coronavirus epidemic with Trump branding it the “Chinese Virus” and insinuated that it had come from a lab in China rather than a wet market. Fuel was poured on the fire with China’s parliament pressing ahead with national security legislation for Hong Kong, raising fears over the future of its freedoms and its function as a finance hub. US President Donald Trump said he would hold a news conference on China on Friday. Trepidation about a further deterioration in Sino-US relations put investors on edge, offering investors who had made decent gains throughout the week the perfect excuse to sell. European markets, including the FTSE 100, opened around 1% down with bond yields creeping in the reverse direction. Gold, which has largely been shunned by investors during the start of the week, shone as safe havens came back into fashion in the lead up to what could be a nervous weekend.

Next week

The coming week sees us transition into the summer month of June. With the sun shining and lockdown measures being gently eased there is plenty to be bullish about, not only as the beginning of June also sits within the constellation of Taurus.

With the majority of Western European markets closed in observation of Whit Monday, analysts will turn their attention to the far east at the beginning of the week. With its export-heavy economy, Japanese economic data usually acts as a helpful gauge for judging the state of the global economy. With the outbreak of COVID-19 the world’s trade has slowed down dramatically, with many predicting this should be reflected in Japan’s Manufacturing PMI numbers, released on Monday. With a reading under 50 indicating contraction and above the opposite, the Land of the Rising Sun’s manufacturing sector has been consistently falling during 2020. However, with a lifting of the restrictions to combat Coronavirus and some green shoots in the global economy, many will be hoping that Japan’s data shows some rebound from the depths it plumbed in March and April.

With the housing market being one such casualty of the Coronavirus outbreak, it will be interesting to see domestic mortgage approvals data, released by the Bank of England on Tuesday. Naturally, the consumer has been reluctant to complete on a house in the past few months, with last month’s statistics showing a fall in moves not seen in a decade. However, spring is usually the time to move and with the Government now starting to relax its lockdown measures, a big move in itself, we may start to see a rise in those being approved for a mortgage.

The first Friday of the month wraps up the week as always with US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data, will be accompanied by Average Hourly Earnings allowing us to gauge how inflation may manifest in the world’s largest economy. However, with the Fed having already fired its “Bazooka”, many will be wondering what the central bank on the other side of the pond can do to stem the rising level of unemployment in the US.

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.