Weekly Market Insight

Latest Economic & Market Update 13th May 2020

13th May 2020

Good afternoon, it is 13th May 2020 and here is your economic and market update from BlackBee.

Today we are going to focus on:

> FED begins purchasing corporate ETFs
> GDP forecasts from banks give insight to their loan books.
> Small businesses in the US are hesitant to apply for loans.

Tuesday saw the price of corporate debt ETFs rise as the FED began purchasing under the secondary market corporate credit facility. The primary market corporate credit facility is expected to start shortly where the FED can purchase debt directly from issuers. A member of the White House coronavirus task force warned of another increase in infections if the economy reopens too soon. This left investors concerned and pushed markets lower. The Dow Jones Industrial Average was down -1.89% for the day, while the S&P500 was -2.05% lower.

The ECB advised banks in the Eurozone to avoid sharply increasing their provisions for bad loans in the future. This is to prevent banks allocating too much funding towards provisions and therefore reducing funding available for loans at a time where companies need it most. In the last few weeks, we saw that US banks were taking a more cautious approach than Eurozone banks, by allocating more to provisions for bad loans. The Italian bank, UniCredit, had one of the most pessimistic views out of all the European Banks. Italy has been the epicentre for the crisis in Europe. GDP change forecasts from European banks also reveal that UniCredit had the worst outlook on the Eurozone economy, forecasting it to contract by 13% in 2020. This is worse than the IMF projected when they forecast a 7.5% contraction in the Eurozone. The contrasting outlooks between banks provides an insight into expectations of how much their loan books can turn bad. It also gives an insight into the condition of European banks, as lenders argue that weak profits since the financial crisis were hampered by the ECB applying negative interest rates since June 2014. On Tuesday, Kristalina Georgieva, the managing director of the IMF, revealed that the IMF will revise its outlook on global economic forecast downwards as the economic impact has increased.

A new $3 trillion plan for stimulus spending has been proposed by Democrats in the US. The main aim of the new stimulus is to provide support to local and state governments, however, this assistance has previously been rejected by Republicans. Local and State governments are struggling to balance costs with the reduced revenue in tax caused by the pandemic. Demand for loans in the small business rescue plan is also slowing. Over $90 billion was borrowed in the first three days of the scheme opening and $100 billion in the subsequent 11 days, but there is still over $122 billion remaining in available funds as demand slows. The slowdown in borrowing is attributed to concerns from businesses regarding meeting requirements for loan forgiveness. One of the conditions of loan forgiveness is that 75% or more of funds borrowed is used to pay staff, but with lockdown still in place, many businesses cannot bring employees back to work. If they were granted a loan and were able to pay employees in the following 8 weeks it would be considered a grant, however, businesses are afraid of it becoming a loan that they may not be able to pay back.

Best & Worst Performers of Large Cap Stocks on Tuesday

Global Market Update
(as at close of markets 12/05/2020)