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Weekly Market Report

25 May 2020

25 May 2020


The Market Last Week

Global equities ended mostly higher last week, amid hopes for additional stimulus from the US Federal Reserve (Fed) and prospects for swift economic recovery in the wake of the coronavirus pandemic.

UK Markets ended the week in positive territory, amid growing optimism over the reopening of economies as several countries eased coronavirus-induced lockdown restrictions.

In the UK, average earnings including bonus rose less than market expectations on a yearly basis in March.

The ILO unemployment rate unexpectedly declined in March.

UK’s consumer inflation slowed in April, hitting its lowest since August 2016.

The retail price index reported a flat reading in line with market forecast in April.

UK’s output producer price index (PPI) declined more-than-anticipated in April.

The DCLG house price index climbed on an annual basis in March.

The CBI balance of firms reporting total order book above normal fell in May, hitting its weakest level since October 1981.

The GfK consumer confidence index eased in May, recording its lowest level since the global financial crisis in 2009.

The preliminary Markit manufacturing PMI advanced more than market consensus in May.

The Markit services PMI climbed more-than-expected in May.

Budget deficit widened to a record high in April.

Retail sales declined in April, registering its largest decline since records began in 1988.

Bank of England Governor, Andrew Bailey, stated that he was less opposed to negative interest rates than before the coronavirus crisis and has refused to rule out introducing negative interest rates in the economy. Moreover, he stated that the central bank is reassessing all options to help the economy recover from a deep recession.

European Markets ended the week on a positive footing, amid hopes of a faster economic recovery from the coronavirus-induced recession.

Eurozone’s economic sentiment index unexpectedly climbed in May.

In the Eurozone, seasonally adjusted construction output dropped on a monthly basis in March.

Eurozone’s consumer price inflation slowed more than estimated in April, hitting its lowest level since 2016.

In the Eurozone, seasonally adjusted current account surplus narrowed to a 3-month low level in March.

Eurozone’s preliminary consumer confidence index improved in May.

In the Eurozone, the preliminary Markit services PMI rose to a three-month high level in May.

Eurozone’s flash Markit manufacturing PMI advanced in May.

In Germany, the flash Markit services PMI rose more-than-expected in May.

Germany’s preliminary Markit manufacturing PMI advanced less than market consensus in May.

In Germany, the ZEW current situation index unexpectedly fell in May.

Germany’s ZEW economic sentiment index advanced in May, recording its strongest reading since April 2015.

The European Central Bank (ECB), in its latest monetary policy meeting accounts, indicated that it is “fully prepared” to provide additional stimulus as soon as June to support the economy, if existing efforts prove to be inadequate. Moreover, the central bank officials have ruled out the idea of a swift economic rebound from the pandemic.

US Markets ended the week in green, amid expectations of additional stimulus measures from the Fed.

The US NAHB housing market index advanced more than market expectations in May.

Building permits declined less-than-anticipated in April.

Housing starts plunged in April, marking its lowest level since February 2015.

The MBA mortgage applications fell on a weekly basis in the week ended 15 May 2020.

The number of initial jobless claims dropped less than market forecast on a weekly basis in week ended 15 May 2020.

Existing home sales sell on a monthly basis in April, recording its biggest drop since July 2010.

The Philadelphia Fed manufacturing index advanced less-than-anticipated in May.

The Markit services PMI rose more than market consensus in May.

The Markit manufacturing PMI climbed more-than-expected in May.

Asian Markets ended mixed last week, as US-China trade tensions overshadowed optimism over reopening of economies.

Australia’s Westpac leading index fell in April.

In Australia, seasonally adjusted retail sales plunged in April.

Australia’s Commonwealth Bank manufacturing PMI unexpectedly dropped in May.

In Australia, the Commonwealth Bank services PMI advanced in May.

The People’s Bank of China (PBoC), kept its key interest rate unchanged at 3.85%, as widely expected.

Japan’s industrial production dropped at par with market expectations on a monthly basis in March.

In Japan, merchandise trade balance recorded an unexpected deficit in April.

Japan’s preliminary Jibun Bank manufacturing PMI fell in May.

In Japan, the national consumer price index (CPI) advanced on an annual basis in April.

The Bank of Japan (BoJ), in its latest monetary policy meeting, kept its key interest rate unchanged at -0.1%, as widely expected. Further, the central bank announced that it has launched a “Main Street” lending program to inject more money into small businesses, in an effort to support the economy from the coronavirus pandemic.

The Bank of Japan (BoJ), in its latest monetary policy statement, pledged to utilise all necessary fiscal and monetary policy tools to contain the economic downturn caused by the coronavirus pandemic. Moreover, the BoJ pledged to buy as much bonds as needed to keep 10-year government bond yields around 0%.

The Reserve Bank of Australia (RBA), in its latest monetary policy meeting minutes, reiterated that it would not raise the cash rate until there is progress on employment and inflation front. Moreover, members agreed that the central bank's policy package was working broadly as anticipated and they were prepared to scale up government bond purchases again, if necessary, to achieve yield target. Meanwhile, officials expect the Australia’s GDP to drop by 10% in the first half and 6% for 2020. Further, the RBA indicated that outlook remained uncertain, however, if coronavirus infection rates continued to decline and restrictions were eased, “recovery could be expected to start later in 2020”.


Currency Update

The EUR ended firmer against the USD last week, after Germany and France proposed to establish a €500 billion recovery fund to help European countries to combat the impact of the coronavirus pandemic.
The British Pound ended higher against the greenback last week, after Britain’s unemployment rate unexpectedly fell in the three months to March.
The US Dollar ended mostly weaker against its major counterparts last week, after the US Fed Chairman, Jerome Powell cautioned that the US economy is undergoing a severe downturn due to the coronavirus pandemic.


Jerome Powell and Steven Mnuchin defend US government’s trillion-dollar stimulus package

US Federal Reserve Chairman, Jerome Powell and US Treasury Secretary, Steven Mnuchin in their testimony before the Senate Banking, Housing and Urban Affairs Committee, highlighted a grim picture of the economic damage caused by the coronavirus pandemic and warned of more severe job losses in the coming months. Moreover, Mr. Powell suggested that more fiscal support to states and businesses might be needed to avoid permanent economic damage, while Mr. Mnuchin suggested that without an expeditious reopening, the economy might never fully recover. Further, Mr. Powell cautioned that a full recovery would not come until the health crisis is resolved. Meanwhile, both of them supported the Fed’s $2 trillion coronavirus relief package.


The Week Ahead

Going ahead this week, investors will keep a tab on the US gross domestic product (GDP), initial jobless claims, the Chicago Fed National Activity Index, housing price index, the Dallas Fed manufacturing business index, news home sales, the Richmond Fed manufacturing index, personal income, personal spending and the Michigan consumer confidence index for further direction. Additionally, Eurozone’s services sentiment, consumer confidence, industrial confidence, business climate and CPI along with Germany’s GfK consumer confidence index, CPI and retail sales will keep investors on their toes. Also, UK’s CBI distributive trades survey and the Nationwide housing prices would garner significant amount of investor attention.


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