Global Markets Update Monday 18 May 2020

Posted on 18 May 2020

Global stocks were unsettled by renewed tensions between the US and China. Additionally, optimism about the relaxation of lockdowns across the US and Europe was tempered by new clusters of virus outbreaks in countries such as South Korea and China and central bank warnings of a protracted economic recovery.

Global Market Update

UK 

The FTSE 100 dropped 2.3% over the week.
The UK economy shrank fell 5.8% over the month of March, the largest drop since the monthly series began in 1997.In the first quarter, UK GDP fell 2%, its largest drop since the financial crisis.

US 

The S&P 500 fell 3.3% over the week.

President Trump threatened to “cut off the whole relationship” with China in retaliation for Beijing’s alleged mishandling of the early stages of the pandemic. He also ordered the main federal government pension fund, which manages almost $600bn on behalf of federal employees, not to invest in Chinese companies, citing the risk of “future sanctions” over Beijing’s handling of the coronavirus pandemic. The US Department of Commerce said it would tighten export controls, specifically targeting the Chinese telecoms equipment maker Huawei and its US suppliers in the semiconductor industry.
Federal Reserve chair Jay Powell warned that a US “recovery may take some time to gather momentum”, dashing hopes of a V-shaped recovery. He indicated that the US may need to deploy “additional policy measures” to avoid an “extended period of low productivity growth and stagnant incomes”.
Another 2.9 million US citizens registered for unemployment benefits in the last week, bringing the total number of new jobless claims since the middle of March to more than 36 million. That equates to nearly a quarter of the American workforce.
US industrial production slumped 11.2% in April, following a 4.5% drop in March. 
Headline US retail sales plunged a record 16.4% in April. Spending at clothing and accessories stores tumbled nearly 90% between February and April, while sales at non-store retailers (which include e-retailers) rose about 21%.

Europe 

The FTSEurofirst 300 lost 3.7% over the week.
Germany's GDP shrank by 2.2% in the first three months of this year in the biggest quarterly fall since 2009. The German economy is now in an official recession as data for the final three months of 2019 was revised to show a contraction of 0.1%.

Japan 

The Nikkei 225 slipped 0.7% over the week.

Pacific Basin

Chinese industrial production rose 3.9% year on year in April, compared to a 13.5% decline in the January-February period. Meanwhile, the decline in fixed-asset investment and retail sales eased. Fixed-asset investment fell 10.3% over the first four months of the year, compared with a 16% decline over the first quarter. Retail sales fell 7.5% year on year in April.

In South Korea, at least 120 people were confirmed as infected with Covid-19 this week in an outbreak linked to a nightlife district in Seoul.
 
Bonds

The yield on the 10-year US Treasury bond closed the week at 0.63%, while the 10-year German Bund yield ended the week at -0.53%.
Indian bonds dropped sharply, with daily yield movements rising the most in three years, after the Indian government raised its borrowing target by more than half, citing the damage to the country’s public finances from the coronavirus crisis.
 

Currencies

The British pound lost ground after the UK’s chief Brexit negotiator said “very little progress” had been made in the latest round of negotiations.

Commodities

Oil prices trended modestly higher over the week. Saudi Arabia said it would cut its oil output by a further 1 million barrels a day, reducing its total output to 7.5 million barrels a day in June. 

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