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MARKET UPDATE: CONCERNS ABOUT ECONOMIC RECOVERY AND NEW INFECTIONS WEIGH ON SHARES

LAST WEEK – KEY TAKEAWAYS

MARKETS: SHARES FALL AS OPTIMISM FADES

  • US shares started the week strongly, especially the technology-heavy NASDAQ index, amid optimism about the restart of business activity following the coronavirus-enforced lockdown;
  • However, global shares ended the week lower after the Federal Reserve (US central bank) predicted the country’s economic recovery would be slow and new cases of the virus emerged in parts of the US and China that were among the earliest to ease lockdown restrictions.
  • Omnis view: Global authorities face the unenviable challenge of finding the right balance between restarting their economies without causing a new wave of infections. The markets will closely monitor their progress over the coming weeks and months, and any sign they are moving too fast could cause further fluctuations.

UK: ECONOMY SHRINKS BY 20% IN APRIL

  • Figures released by the Office for National Statistics showed the UK economy shrunk by 20.4% in April compared to the previous month[1].
  • Omnis view: The drop in economic growth may be the sharpest on record, but it was widely expected as the country spent the month in lockdown. However, business activity started picking up in May, so April’s figure should represent the trough.

US: FED KEEPS INTEREST RATES AT RECORD LOWS

  • The Federal Reserve decided against changing interest rates at its latest meeting and suggested they may remain at the current level until 2022 to offset the damage caused by the pandemic;
  • The Fed also forecast that the US economy would shrink by 6.5% this year before recovering by 5% in 2021[2].
  • Omnis view: While the Fed’s gloomy outlook weighed on shares, it pledged to continue using all the tools at its disposal to support the domestic economy, which have helped the markets rally since plunging in March.

BREXIT: EU OFFERS CONCESSION

  • The EU’s chief negotiator Michel Barnier said he was prepared to make concessions on how business regulations are enforced after Brexit, one of the most contentious issues facing the UK and EU during the latest round of negotiations.
  • Omnis view: With the global economy still recovering from lockdown, the last thing UK markets need is further Brexit uncertainty, so any signs that the two sides could come to an agreement will be welcome.

LOOKING AHEAD – TALKING POINTS

ECONOMIC DATA

  • Tuesday- UK unemployment rate in April;
  • Wednesday- UK inflation rate (the rate at which prices rise) in May;
  • Friday- Japanese inflation rate in May.

MONETARY POLICY

  • Tuesday- Bank of Japan interest rate decision;
  • Thursday- Bank of England interest rate decision.