Global Markets Update Monday, 1 June 2020

Posted on 01 Jun 2020

Travel and leisure stocks, among the worst hit since the coronavirus crisis began, rebounded as European economies started to re-open without any apparent second wave of infections. Tui shares rose 40% over the week, while Cineworld shares rose 45%. Many US states also eased lockdowns, with the number of daily US fatalities hovering around the lowest level in about two months.

 

UK
The FTSE 100 gained 1.4% over the week.
The UK government announced further measures to ease the lockdown, the COVID-19 alert level was reduced from Level 4 to Level 3. With schools due to partly re-open this week, non-essential retailers will be allowed to open from 15 June.

US
The S&P 500 rose 2.1% over the week, moving above the 3,000 level for the first time in three months.
President Trump said his administration would revoke special trade privileges for Hong Kong but did not impose the harsher sanctions that many had feared. Mike Pompeo, secretary of state, said the US no longer viewed Hong Kong as autonomous from China.
The Federal Reserve’s “Beige Book”, a survey of economic conditions, highlighted the extent of the impact of coronavirus on the US economy and noted that the outlook remained highly uncertain. 
Fed chair Jay Powell said he was “strongly committed” to deploying measures to help the economy during the coronavirus pandemic.
US consumer spending slumped 13.6% in April - the largest monthly drop on record.
Another 2.1 million people registered for unemployment benefits, bringing the total number signing on to more than 40 million since the start of the US lockdown.
Twitter and Facebook suffered after the President threatened to sign an executive order tightening restrictions on social networks.

Europe 
The FTSEurofirst 300 rallied 2.6% over the week.
The EU proposed a €750bn recovery fund to aid member states hit by COVID-19. The help would be made up of €500bn in grants and €250bn in loans.
The European Commission consumer confidence indicator improved to -18.8 in May, from -22.0 in April. Economic sentiment rose to 67.5, compared to an all-time low of 64.9 in April. The data added to the general belief that the worst of the economic pain from the pandemic was over.
Headline eurozone inflation fell to a four-year low of 0.1% in May, with inflation turning negative in 12 of the 19 eurozone countries. Germany, France and the Netherlands saw the largest price rises, while prices fell in Italy and Spain. Core inflation held steady at 0.9%.
The Ifo survey of German business sentiment rose to 79.5 in May, up from a record low of 74.3 in April.
Italy said its economy had shrank 5.3% in the first quarter, a steeper fall than its earlier estimate. 
Sweden revised up its estimate of first-quarter GDP growth to 0.1%, from an initial estimate of a slight contraction. The country had stood out with its controversial approach to COVID-19.
 
Japan 
The Nikkei 225 surged 7.3% over the week.
Prime minister Shinzo Abe lifted a nationwide state of emergency which has been in place for seven weeks. Japan has avoided an explosive increase in cases without the compulsory lockdowns used in Europe or the US.

Pacific Basin
South Korea reported the largest rise in daily cases for more than two months, leading the government to strengthen quarantine measures for two weeks in the metropolitan area surrounding Seoul.

Emerging Markets
After its ninth sovereign debt default, Argentina came closer to reaching agreement with bondholders as it attempts to restructure $65bn of sovereign debt. An initial proposal put forward by the Argentine government in April was rejected by three separate creditor groups, but the government has now countered updated proposals. Payments will now restart in 2022 compared to 2023 previously, and it also increased the average coupon payment on the new bonds and reduced the proposed size of the principal haircut.
Brazil’s GDP dropped 1.5% over the first quarter of 2020. The country now has the second highest number of COVID-19 infections after the US.
 
Bonds
The yield on the 10-year US Treasury closed the week at 0.66%, while the yield on the 10-year German Bund closed the week at -0.45%.
The yield spread between Italian and German 10-year bonds fell to less than 200bps – the lowest level since April.