Global Markets Update Monday, 8 June 2020

Posted on 08 Jun 2020

Global stocks rallied amid growing optimism over economic recovery, overcoming concerns over rising racial protests and ongoing heightened tensions between Beijing and Washington. In contrast, global bonds retreated as yields rose amid waning risk aversion.
 
 
UK
The FTSE 100 jumped 6.7% over the week.
The Bank of England warned companies to prepare for the UK exiting its transition arrangement with the EU without a deal as the fourth round of the talks on the UK’s future trading relationship with the EU ended in stalemate. UK and EU leaders will meet in June to try to find a way to ease the impasse.
The UK pressed ahead with its controversial plans to introduce quarantine measures on all international arrivals with effect from Monday 8 June.
The final reading of May’s IHS Markit/CIPS composite purchasing managers’ index increased to 30.0, up from April’s record low of 13.8. Services sector activity rose to 29.0 in May, compared to 13.4 in April, while manufacturing hit 40.7 from 32.6 the previous month.
 
US
The S&P 500 surged 5.2% over the week, boosted by jobs data that suggested the economic recovery may be sharper than expected. The rally took the tech-heavy Nasdaq to within 3 points of its record high, while the broader S&P is now only down around 1% for the year to date.
Non-farm payrolls unexpectedly rebounded in May, with the addition of a record 2.5 million jobs. The unemployment rate slipped to 13.3%, from 14.7% in April. Consensus expectations had been for a loss of 7.5 million jobs, which would have put the US unemployment rate close to 20%.
Speculation grew that the Federal Reserve was considering purchasing assets that cap yields on short-term debt, to control borrowing costs.
The ISM manufacturing index rose to 43.1 in May, from 41.5 in April, while the non-manufacturing index increased to 45.4 from 41.8 in the previous month.
 
Europe 
The FTSEurofirst 300 rebounded 7.3% over the week. Travel and leisure stocks were among the strongest gainers as countries started to re-open their borders.
The European Central Bank extended its bond-buying programme by €600 billion and until at least June 2021, leaving it on track to buy a record €1.4tn of assets this year across all its stimulus programmes. As growth and inflation forecasts were slashed, ECB president Christine Lagarde said the region was “experiencing an unprecedented contraction”, adding that “severe job and income losses and exceptionally elevated uncertainty” had led to a “significant fall” in both consumer spending and investment.
The German government announced a €130 billion stimulus package, including a cut in value added tax on purchases for the rest of this year and a €300 payment per child. The Bundesbank predicted that the measures could add an extra percentage point to German GDP this year and a further half a percentage point in 2021.
High-frequency data indicators, such as mobility and consumer spending, suggest that the sharp economic contraction which has gripped major European economies since March began to ease in May and early June.
The final reading of May’s eurozone composite purchasing managers’ index came in at 31.9, compared to a preliminary estimate of 30.5 and compared to April's all-time low of 13.0.
 
Japan 
The Nikkei 225 rallied 4.5% over the week.
 
Pacific Basin
China’s official manufacturing purchasing managers’ index eased slightly to 50.6 in May compared to 50.8 in April, while the Caixin index rose to 50.7 in May from 49.4 the previous month.  
 
Bonds
The yield on the 10-year US Treasury rose 27bps over the week to close at 0.93%. This was the largest weekly rise in yields since September 2019. The difference in yields between five-year and 30-year Treasuries rose to 122bps points, the most since December 2016.
The yield on the 10-year German Bund ended at -0.28%, a rise of 17bps over the week and its highest level in two months. Meanwhile, peripheral eurozone debt, particularly bonds issued by Italy and Greece, benefited from the ECB’s announcement that it was to increase and extend its bond-buying programme.
The Japanese yield curve steepened as yields on 30-year JGBs rose to more than 0.5%, their highest levels for more than a year, ahead of deluge of new issuance from the government to fund its Covid-19 fightback. While there is an official target for the 10-year yield, no such target exists for longer maturities.
 
Commodities
Brent crude rose above $42 a barrel amid speculation that Opec and Russia would agree to extend their record cuts to production. 
Copper entered a bull market, rising above $5,553 a tonne which is more than 20% above its trough in March, boosted by strong demand from China and hedge funds closing bearish bets.
 
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