LAST WEEK – KEY TAKEAWAYS
MARKETS: RETURN TO WORK LIFTS SHARES
- Global shares ended the week higher, overcoming lingering concerns about tensions between the US and China and evidence of the toll that the coronavirus pandemic has taken on the global economy (see UK and US sections below);
- The markets rallied as US states and European countries eased lockdown restrictions and the prospect of a subsequent rise in demand boosted oil prices.
- Omnis view: The markets appear to be focusing on the economic recovery which they hope will be reinforced by unprecedented support from governments and central banks. However, reports of new outbreaks in China, South Korea and Germany as they attempt to restart activity may give pause for thought.
UK: BANK OF ENGLAND OPTIMISTIC ABOUT RECOVERY IN 2021
- The Bank of England (BoE) kept interest rates at their current level and warned the UK economy could shrink by as much as 14% in 2020;
- Figures released by IHS Markit showed UK business activity fell to its lowest level on record in April;
- Meanwhile, the pound weakened against the US dollar amid uncertainty about whether the government would extend the Brexit deadline past the end of this year.
- Omnis view: The BoE was more optimistic about the outlook for the UK economy which it claimed could rebound by 15% in 2021. Governor Andrew Bailey also pledged to introduce further support measures if needed.
US: CORONAVIRUS WEIGHS ON JOB MARKET
- The slowdown in US economic activity due to the coronavirus pandemic led to the loss of more than 20 million jobs in April, according to the latest non-farm payroll report;
- Despite tensions with China over the source of the virus, talks continued between the two sides about the implementation of the first phase of the trade deal signed in January.
- Omnis view: The rise in unemployment could prolong the recovery, putting pressure on politicians to take additional steps to support the economy. However, they are struggling to agree on the terms of a new package of measures.
EUROPE: GERMANY CHALLENGES ROLE OF QE
- The euro weakened against the US dollar after a German court questioned the use of the European Central Bank’s (ECB) bond-buying programme, known as quantitative easing (QE).
- Omnis view: QE is a key tool employed by the ECB to keep the income paid on bonds (yields) low and support the financial system, so divisions among member states about its use weighed on the euro. The ECB must respond to the German court within three months.
CHINA: EXPORTS INCREASE IN APRIL
- Chinese exports (goods produced in China but sold abroad) rose by 8.2% in April according to the country’s customs agency.
- Omnis view: An increase in exports is further evidence that Chinese economic activity is picking up again, although demand from Europe and the US may take longer to recover.
LOOKING AHEAD – TALKING POINTS
- Tuesday- Chinese inflation rate in April; US inflation rate in April;
- Wednesday- UK economic growth in the first quarter;
- Friday- Chinese unemployment rate in April.