Market Round-up 18-22 May

Thomas Watts


This week

In another volatile week for global markets, hopes for an imminent discovery of a vaccine for Coronavirus on Monday gave way to worries over the economic damage the virus has already wreaked.

Markets received a literal shot in the arm during the beginning of the week, rising almost 3% on Monday with oil rallying to highs last seen in mid-April as data from an early-stage trials for a COVID-19 vaccine lifted hopes of a faster economic slump. US pharmaceutical company Moderna, said its experimental COVID-19 vaccine showed promising results in a small early-stage trial; its stock unsurprisingly closed up north of 20%. Germany’s manufacturing index was another big winner, rising 5.7%, also spurred on by talks of a European recovery fund which could inject €500 billion to help the bloc recover quickly after the virus.

After such an optimistic start, the rest of the week saw markets start to roll, needled by persistent worries over the economic havoc already endured from the virus. On domestic shores, Britain’s economy shrank again in May as lockdown remained largely in place. Although falling at a slower pace than last month’s reading, a separate survey released on the same day from the Confederation of British Industry showed manufacturing output at its lowest on record - going back to 1975 - during the three months to May. Such data only served to stoke fears that the UK could be in for a frustratingly slow recovery. The situation was summed up well by Britain’s chief budget forecaster, who remarked that April was probably the bottom of the downturn, but the economy was unlikely to bounce back quickly.

The worry amongst investors was palpable, highlighted by a government debt auction on Wednesday which saw a government bond with a negative yield being sold for the first time in history. The phenomenon effectively means that the government is now being rewarded for borrowing with investors paying to loan to them.


Next week

Whilst the coming week is shortened due to the Spring Bank Holiday, there is still plenty to watch out for as a busy final week of May approaches. 

At a time when many would normally be looking to move, Nationwide’s HPI data during the beginning of the week should make for interesting reading. The numbers represent the UK’s earliest report on housing inflation but usually produce only a mild reaction as buying and selling prices are not always correlated. However, their data still acts as a leading indicator as to the state of the UK’s housing market as rising house prices attract investors and often spurs industry activity. 

Much like the housing data on Monday, the rest of the week will see economists move from one address to another. Starting in Europe, the European Central Bank (ECB) releases its Financial Stability report, detailing its assessment of conditions in the European financial system and potential risks to its stability. Analysts will listen intently as the evidence and arguments put forward about the strains and imbalances of the economy can provide insight into the future of monetary policy. 

The week is rounded off with a speech by perhaps the most important person in economics currently, Jerome Powell, Chair of the US Federal Reserve. With chances of US rates going negative for the first time, his words will be analysed for hints as to future rate trajectories. Friday will see Powell participate in a panel discussion at Princeton University's Griswold Center for Economic Policy Studies, in New Jersey.

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.