Weekly Market Insight

Latest Economic & Market Update 29th April 2020

29th April 2020

Latest Economic & Market Update: Latest Maturities | Short positions against the Pound hits highest level of 2020 | British Airways to cut 12,000 jobs

Latest Economic & Market Update
Good Afternoon, it is 29th April 2020 and here is your economic and market update from BlackBeeToday we are going to focus on:
 > Short positions against the Pound hit highest level of 2020.> Deflation worries seen in derivative pricing.> British Airways cut over 12,000 jobs with warning that recovery will take years.> EU provides new capital for lending.The short position against the British pound has reached its highest level of 2020. The net position of non-commercial investors in the futures market, fell to minus 1,380. This is the first time this year that net positions have fallen to a negative figure, indicating a bearish sentiment towards the pound. The negative outlook on the pound is influenced by a repeat of uncertainty regarding Brexit, combined with the effect of the crisis. At the start of the week Boris Johnson stated that the EU would have to change course if a deal was to be agreed. The cabinet Office Minister then stated that the pandemic should concentrate minds instead of being an excuse to not have daily negotiations. Divisive tones from parliament lead to investor uncertainty. Unless there is a common tone, the pound will continue to have a bearish sentiment and decrease in value. This will only add to economic troubles in the UK.As Central Banks pump money into the system, deflation is a major concern for policy makers and will be a talking point at meetings this week. The impact of the crisis on inflation has yet to appear on the FED’s personal consumption expenditure price index as the figures cover the time period prior to the shutdown. Prices for derivatives reflect investor sentiment and 1 year inflation swaps are now indicating an inflation rate of minus 1%. Two year swaps are pricing below 0. These are the lowest prices since 2008. Demand has plummeted due to the depth of the crisis. Despite significant intervention from the FED, consumer prices will still fall as large numbers will remain out of work and those who keep jobs will favour saving money. Both circumstances will result in lower spending outside of basic needs.The outlook for the aviation industry is looking bleak. British Airways are the latest airline to announce job cuts. Yesterday, the company announced that they will be cutting approximately 30% of its workforce. Over 42,000 people are currently employed by the Airline company but this is set to be reduced by 12,000. Along with many other airlines, the company have warned that recovery in passenger numbers will take years to reach the levels seen earlier in the year. With the recovery of passenger numbers set to be slow, job losses will be permanent, another huge blow to the economy. The rate of recovery from the crisis will be heavily influenced by current job losses across all industries being temporary. If there is a growing increase in permanent job losses, which becomes more likely with each day the lockdown remains in place, economic recovery will be slow.In a move to provide temporary capital relief, the EU has offered up to €450bn in funding to banks. The EU stated that the extent of the damage caused by the crisis has justified an easing of regulations. The demand for loans has surged and the relaxation of regulation will keep credit flowing throughout the economy, a stark contrast to 2008 where lending regulations were severely tightened. The balance sheet of banks are under pressure as demand surges and the rate of default increases. The liquidity that is being provided is considered vital, however the ability of businesses to meet interest payments and repay loans hinge on their business returning to profitability after lockdown ends, in combination with a hope that a second wave of an outbreak does not occur.
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