Weekly Market Insight

Latest Economic & Market Update 18th May 2020

18th May 2020

Good afternoon, it is 18th May 2020 and here is your economic and market update from BlackBee.

Today we are going to focus on:

  • US Stocks close lower for the week as investors move to “safe havens”.
  • The fall in applications for unemployment benefits in the US slower than expected.
  • The FED warns that asset prices remain vulnerable.

Last week saw the market reflect an increase in concern about the condition of the economy, accompanied by a wave of disappointing economic data and President Trump increasing tensions with China. US stocks closed lower for the week with the S&P500 finishing down 2.3%. Investor concern saw an inflow into safe-haven assets such as gold, which closed out the week up 2.4%. During the month of April, gold ETFs saw record inflows, recording $9.2bn in new cash. The price of gold has seen a recovery since it sank during the market rally in late March.
 
The number of jobless claims in the US rose to 36.6 million last week as a further 3 million Americans applied for unemployment benefits. Although the number of jobless claims is considered to have stabilised, it was expected that the number of claims would decrease more rapidly after the initial wave of layoffs. This raises concerns that businesses are falling deeper into trouble, indicating more layoffs might be permanent. With the reopening of the economy, the numbers hired may be significantly outweighed by the number of people applying for unemployment. US industrial production fell by 11.2% in April, the most in over a century. US retail sales, which measures the sales in restaurants and shops, was worse than economic forecasts of 12%, measuring a 16.4% decline in April. These readings could potentially be the lowest levels hit as the economy begins to reopen.
 
The FED has warned that the losses experienced by banks as a result of the crisis could strain bank finances. Accompanying this in the report was a warning that asset valuations could see a further drop as they remain vulnerable to the course the pandemic takes. Despite the financial strength with which US banks entered the recession, the long lasting effects of the crisis on business balance sheets and households could see material losses to lenders. The FED stated that the effects of the crisis on businesses and households could last a sustained period of time. The financial strength of banks will not prevent damage but may prevent additional damage to the economy. A plan has also passed the Democrat controlled House of Representatives for $3 trillion in new stimulus spending. Despite the plan being passed in the house, it has come under heavy criticism that it does not help the economy get back on track. Critics claim that it puts employers in competition with unemployment benefits, and that tax payer money going to areas that will not stimulate the economy.

Best & Worst Performers of Large Cap Stocks on Friday
Click the image to enlarge

Global Market Update
(as at close of markets 15/05/2020)