Weekly Market Insight

Latest Economic & Market Update 20th May 2020

20th May 2020

Good afternoon, it is 20th May 2020 and here is your economic and market update from BlackBee.

Today we are going to focus on:

  • Is the FED delaying a wave of inevitable defaults?
  • The UK records the biggest number of unemployment claims on record. 
  • Germany and France propose a new plan for EU Recovery Fund. 

Investors have been continuing to lend to so-called “Zombie Companies” as corporate debt markets are supported by the FED. These zombie companies are no longer turning profits and business operations are no longer possible with the current crisis. There is a concern about how these companies will meet interest due on the loans and whether the FED support is pushing a wave of defaults down the line. Although companies are in need of support to get through the crisis, for the companies that would have gone out of business and have no income coming in, they are more likely to borrow again and if the FED continues to support them, further down the line the outcome could be much worse.

Rishi Sunak, the UK’s Chancellor of the Exchequer, has warned that the UK economy may not experience a sharp recovery and that there would be permanent effects from the crisis. This comes just two weeks after the Bank of England Governor came under criticism for being unrealistic by expecting a V-shaped recovery. The jobless claims in the UK have recorded the biggest month-on-month gain since the record started in 1971, having recorded nearly 2.1 million claims. The state’s subsidy wage scheme, which supports approximately 10 million people, has prevented this figure from reaching much higher levels.

Angela Merkel and Emmanuel Macron have pushed for a €500 billion EU recovery fund. The plan would see the EU Commission raise money by borrowing in markets and would allow for EU spending in the form of grants, rather than loans to member state governments. The fund is aimed at improving the joint European fiscal effort to address the crisis and will provide significant funding to the worst-hit regions and sectors. The EU Commission’s borrowing would be paid back at a later date, the details of which are still to be discussed. While this plan has seen Germany and France come together, there has been opposition because some member states want the funds to be in the form of loans to force accountability on member states.

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

Global Market Update
(as at close of markets 19/05/2020)