LAST WEEK – KEY TAKEAWAYS
MARKETS: OPTIMISM OVER POTENTIAL VACCINE BOOSTS SHARES
- Global shares ended the week higher as US biotech firm Moderna announced positive results from a trial for its vaccine, and European countries continued to ease lockdown restrictions without experiencing a substantial rise in new coronavirus cases;
- Tensions between the US and China weighed on the markets though, as US President Donald Trump accused China of spreading disinformation about the pandemic, and reports indicated that China plans to impose a national security law on Hong Kong.
- Omnis view: For now, good news about the world’s gradual return to normality seems to be eclipsing concerns over the relationship between the US and China, which would have rattled the markets before the pandemic. However, government bonds, traditionally considered safe haven assets at times of turbulence, also rose last week, reflecting a degree of uncertainty among investors.
UK: TENTATIVE SIGNS OF ECONOMIC RECOVERY
- Early estimates published by research firm IHS Markit showed business activity in the UK picked up in May after hitting record lows in April;
- Bank of England governor Andrew Bailey said negative interest rates are one of the tools under consideration to support the UK’s recovery.
- Omnis view: While an increase in business activity is grounds for optimism, it remains well below pre-crisis levels. How long activity takes to fully recover and have a material impact on economic growth depends on the speed and success of the government’s plans to ease lockdown restrictions.
BREXIT: TENSIONS LINGER AS TALKS CONTINUE
- Tensions remained elevated as the UK and Europe clashed over the contentious issue of the Northern Irish border and the level of access UK businesses will get to the European market after Brexit.
- Omnis view: As the coronavirus crisis gradually fades, focus is increasingly turning to the fast-approaching deadline next month when the two sides must decide if they can finalise a free trade agreement by the end of the year. The pound’s reaction against the US dollar was relatively muted, although it may fluctuate if the likelihood of a hard Brexit increases.
EUROPE: COORDINATED ECONOMIC RESPONSE PROPOSED
- Germany and France called on EU members to agree on a package of measures worth €500 billion to support the region’s economic recovery as it emerges from lockdown;
- Business activity also rose in the EU in May, although it still has some way to go to reach the level it was at before the pandemic.
- Omnis view: The EU has been slow to agree a coordinated response, so the markets should welcome two of the region’s biggest economies arguing in favour of a sizeable support package. However, all 27 member states must approve it, and several countries oppose issuing grants instead of loans. Talks continue this week.
LOOKING AHEAD – TALKING POINTS
- Friday- Japanese unemployment rate in April; EU inflation rate in May.