Weekly Market Insight

Latest Economic & Market Update 21st May 2020

21st May 2020

Good afternoon, it is 21st May 2020 and here is your economic and market update from BlackBee.

Today we are going to focus on:

  • The UK sells its first long term negative-yielding gilt.
  • Rolls Royce to cut 9,000 jobs.
  • The FED discusses ways to provide clearer guidance on the future path of monetary policy.

Wednesday saw the UK sell its first long term negative-yielding government bond. £3.8 billion of three-year gilts were sold at an average yield of -0.003%. The sale of negative-yielding bonds, which essentially pays the British Government to borrow, shows that demand for safe-haven securities is high and illustrates the fears of a deep impending recession. The only other time the UK has sold a negative-yielding bond was in 2016, where a one month bill sold at a rate of -0.1038%. The Bank of England has been debating the introduction of negative interest rates and on Monday, overnight swaps priced negative interest rates as early as December.

Following from the collapse in demand in the airline industry, which led to the cancellation of aircraft orders and airlines cutting routes, the UK aero-engine maker Rolls Royce is cutting 9,000 of its 52,000 jobs. The company stated that the move is to protect jobs for the future and to protect the business. Approximately two-thirds of the jobs lost will be in the UK. The airline industry has seen a mass of job cuts in expectation of a recovery that will take years. It is further bad news for the UK, which saw 2.1 million unemployment claims in April. UK Inflation figures for April recorded the weakest level since 2016, as inflation slowed to 0.8%, down from 1.5% in March reflecting weakening demand.

During last months Federal Open Market Committee meeting with the Board of Governors, officials debated on how to give clearer guidance regarding the future path of monetary policy. The discussions were based around tying changes in monetary policy to economic recovery milestones. For example, interest rates will increase when a certain level of unemployment or inflation is hit. This is on the back of calls from investors to give more long term guidance for monetary policy. Concerns were raised in the meeting over a potential second wave of coronavirus in the near and medium-term which would result in a drawn-out period of severely reduced economic activity.

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

Global Market Update
(as at close of markets 20/05/2020)