Weekly Market Insight

Latest Economic & Market Update 19th May 2020

19th May 2020

Good afternoon, it is 19th May 2020 and here is your economic and market update from BlackBee.

Today we are going to focus on:

  • US Stocks make biggest daily gains in nearly two months.
  • FED Chair Jerome Powell sees possible full recovery by end of 2021.
  • The UK’s 14-day quarantine systems effect on tourism.
  • Tensions increasing between the US and China.

There were strong gains in US stocks on Monday as investors drew hope from the easing of lockdowns and positive results from a US Covid-19 vaccine trial. These hopes were supported by Jerome Powell commenting over the weekend that the FED had more resources to support the economy if needed. The DOW Jones Industrial Average pushed 3.85% higher on Monday, its highest daily return since the 26th March. The S&P500 closed 3.15% higher, its highest daily return since 8th April. The rise in optimism from investors also saw the price of oil push higher on hopes of increased demand. The West Texas Intermediate closed at $31.82, the highest level reached since the 11th March.

Jerome Powell has warned that recovery in the US may take until the end of 2021 and would require the development of a vaccine. Avoiding a second wave of Covid-19 is vital to see the economy recover throughout the remainder of 2020. Mr. Powell stated that the good news is that a large number of those that have been laid off, have been laid off temporarily. He expects net job losses to continue for the next couple of months and unemployment to hit between 20-25%.

In the UK, the government has stated that countries with low infections rates could be excluded from the 14-day quarantine system. The UK was one of the last countries to close its borders, for which the government came under heavy criticism. The 14-day quarantine system was also criticised as it was viewed to harm the tourism industry. The new system will affect the number of international tourists but may increase the level of domestic tourism.

Earlier this year the US and China had agreed to a phase one trade deal in which China would purchase more US goods and services while the US reduced tariffs on Chinese imports. It was a deal that eased tensions. However, with the outbreak of Covid-19, there has been an increase in tension between the two nations, as US policymakers have been criticising China over the handling of the outbreak and blaming it for the pandemic.

This has led to threats of changing supply chains and further retaliation measures. President Trump froze funding to the WHO temporarily last month and has stated that he will make it permanent in the next 30 days and consider withdrawing the US from WHO membership unless the WHO show independence from China. Investors have long been fretting over the impact of tensions between the US and China due to the knock-on effects of tariffs on US companies.

China’s President Xi stated that any vaccine found by China would be considered as a public good and available to all. The White House has called this a distraction from a growing number of countries calling for accountability and have been negotiating to lighten the language in a WHO resolution which allows developing countries to ignore patents to gain access to Covid-19 treatments cheaper. A lightening of the language in the WHO resolution would see access to a vaccine that is found restricted.

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

 

Global Market Update
(as at close of markets 18/05/2020)