Weekly Market Insight

Daily Global Market Update 6th April 2020

06th April 2020

Central Banks free up $0.5tr by lifting of stress measures. Emerging Markets under pressure.

(06/04/2020)

Consumer confidence remains low, which may hinder economic recovery as demand will be taking the driving seat. The EU and US will be looked to drive this recovery in demand, as between them they account for 35% of global demand. By generating demand, policymakers can get real economies going again. In comparison China’s economy is primarily supply orientated, so analysts and commentators will be focused more on the EU and US in this regard.

India is reducing its exports in an attempt to bolster their own economy. In the UK economic conditions may be bleaker than their European counterparts as they were slower to respond to the outbreak. Spain is implementing a basic income scheme and Japan is on the verge of a state of emergency after recording a second wave of coronavirus cases – something the WHO is very worried about happening globally.

Over the weekend $0.5tr has been freed up by Central Banks due to the lifting of stress measures that were implemented after the previous financial crisis. Freeing capital buffers and postponing stress tests has allowed additional cash to be made available. In another example of the contrast between how the EU and US are tackling the crisis, 60% of this $0.5tr has been freed up by EU Central Banks, while only 3% has come from the US. Since the EU is not a fiscal union, it is pushing money to the real economy through the banks, where the US can put money in people’s pockets. The EU has to take a multi-factor approach to stimulating the real economy in the absence of a fiscal union, including potentially accessing different options available directly to governments through different mechanisms so long as strict measures and spending limits are adhered to – similar to the spending levels Ireland had to maintain post-2008 crisis.

Discord is emerging in the EU however, as the different member states have different views on how to best implement any lending mechanism.

Markets, ever looking forward, appear to be stabilising in the last day or so and futures are looking higher. Now markets are going to be looking out for weaknesses, at the those who are most likely to lose out during this crisis. Emerging markets are likely to suffer under current conditions since they tend not to drive demand. Combined with high debt, these economies will face increasing pressure as their economies recede.