Weekly Market Insight

Latest Economic & Market Update 29th May 2020

29th May 2020

Good afternoon, it is 29th May 2020 and here is your economic and market update from BlackBee.

Today we are going to focus on:

  • Risk of borrowing costs rising
  • 41 million jobless claims in the US
  • Trump to re-examine social media law

Graph of the Week: Risk of Borrowing Costs Rising
Click image to enlarge

Source: Bloomberg, May 2020

On Wednesday, President of the ECB Christine Lagarde warned that the Eurozone could shrink by up to 12% this year. Accompanying this, was her opinion that the mild scenario forecasted by the ECB was already outdated and the contraction in the Eurozone economy would be worse than originally expected. At the live webinar, she was asked about the potential of another financial crisis to which she responded that she thought it was unlikely and she is not concerned because borrowing costs are low. Borrowing is substantially increasing for governments in the Eurozone with Italy expecting to have a debt to GDP ratio of between 155% to 159% by the end of 2020. At the end of last year, this stood at 134.8%. In comparison, Germany’s debt to GDP ratio is expected to rise to over 75% by the end of the year, up from 60% at the end of last year. That being said, the amount of debt is not the cause for concern, it’s the borrowing costs. So far the ECB’s intervention in credit markets has helped keep yields low for countries such as Italy (as seen in the above graph) which is considered a risk country in the Eurozone economy. Yields are currently low despite the Eurozone recording its fastest contraction on record for Q1 2020 which shows that the ECB intervention has worked, keeping borrowing costs down. Italy’s GDP contraction was also the largest contraction in GDP on record. The forecasted Q2 GDP contraction is still worse than any seen during the financial crisis of 2008. If Italy’s economic condition becomes worse than expected, investors may reassess risk, pushing borrowing costs up and towards a financial crisis unless the ECB can continue to keep yields low.
At a glance:Unemployment claims in the US have reached nearly 41 million with more than 2 million people applied for benefits last week.Thursday saw US President Trump sign an order that re-examines the 1996 law which prevents social media companies from being sued for the content shown on their platforms.

Best & Worst Performers of Large Cap Stocks on Thursday
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Global Market Update
(as at close of markets 28/05/2020)