Weekly Market Insight

Latest Economic & Market Update 27th May 2020

27th May 2020

Good afternoon, it is 27th May 2020 and here is your economic and market update from BlackBee.

Today we are going to focus on:

  • Investors speculate that the worst of the economic hit has passed.
  • France to support the automotive industry.
  • European Central Bank warns that vulnerable countries could be under further pressure if a downturn is worse than expected.

Tuesday’s trading saw the S&P500 rise above the 3,000 mark and the DOW Jones Industrial Average rise above 25,000, before pairing some of their gains. These levels have not been reached since early March. Despite pairing some of the gains in the final half an hour of trading, (nearly as much as 50% of gains for the S&P500) both indices closed higher on renewed speculation from investors that the worst of the economic hit has passed. Released economic data has shown historically bad readings but there has been an influx of investors into riskier assets as lockdown restrictions have begun to lift and high-frequency measures for economic activity have recorded an increase. The Spanish Flu in 1918 taught us to not lift restrictions too early as the second wave was considerably worse than the first. With no vaccine in place yet and the reduction of restrictions in many countries who have not seen a considerable flattening of the curve in Covid-19 cases, the easing of restrictions could be short-lived and could pose a further threat to the economy.

An €8 billion plan was announced on Tuesday by President Emmanuel Macron to support France’s motor industry. The plan aims to make France’s automotive assemblers a leading country in Europe for the production of clean vehicles post-crisis. It includes subsidies for research into hybrid and self-driving cars as well as subsidies for buyers of electric and hybrid cars. The automobile sector has been hit hard by the lockdown. The sector directly employs 400,000 people and supports nearly 600,000 people in related services.

The ECB has warned that the levels of sovereign debt could put pressure on vulnerable Eurozone countries again. In its biannual financial stability review, they forecast that Eurozone governments budget deficits will reach on average 8% of GDP this year. The ECB also forecast that total government debt is set to rise above 100% of GDP, up from 86% of GDP. If the downturn is worse than expected, public finances in highly indebted countries could be put on a very unstable path and private investors could reassess risk, driving borrowing costs up.

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

Global Market Update
(as at close of markets 26/05/2020)