S&P500 closed at one month high | US airlines have received bailout from US Treasury Department
mixed earnings reports on Tuesday from J&J, JP Morgan and Wells Fargo, the
S&P500 closed at a one month high. In comparison, the Stoxx Europe 600
index closed lower on the back of earnings results. The uncertainty revolving
around the pandemic was highlighted in ASML Holding NVs earnings report, a
company who plays a vital role as a supplier to Samsung Electronics Co. They
reported a 40% drop in earnings in the first quarter and did not provide
guidance for the next quarter.
The IMF stated on Tuesday that even if a sharp recovery occurs in 2021, albeit an unlikely scenario, most countries should expect their economies to be 5% smaller than planned. This year has been forecasted to be the worst global economic contraction since the Great Depression of the 1930’s. Investors do not like uncertainty and despite this forecast from the IMF, it does not account for a potential second wave of the Coronavirus, a scenario which they have previously stated could plunge GDP by an additional 2%.
The UKs official watchdog has warned that if the lockdown remains in place to control the Coronavirus for another three months in the UK, the economy could face a 35% plunge in output. Government borrowing to ease the economic stresses caused could see the budget deficit rise to 14% of GDP, well above the 2008 crisis where it hit 10% and the highest since the second world war. Despite this, the cost of inaction would have been a lot worse as the government aims to keep workers tied to their jobs using the furlough scheme.
US airlines have received a bailout from the US Treasury department, in a move that will see the sector receive billions of dollars to aid payroll costs. Job protection has been at the forefront of global government action to reduce the economic impact of the lockdowns. Airline industries have been significantly hampered by the lockdown due to the restriction of movement. The industry faces mounting debt as in addition to the bailout, they have been burning through cash reserves and taking on debt since the crisis began.