Weekly Market Insight

Latest Economic & Market Update 2nd June 2020

02nd June 2020

Good afternoon, it is 2nd June 2020 and here is your economic and market update from BlackBee. Due to demand, we have just launched the BlackBee Healthcare Bond 3, details of which are below.

Today we are going to focus on:

  • Markets again show how dislocated they are from the real economy.
  • Eurozone growth in inflation falls as low as 0.1% for May highlighting the risk of a deflationary period.
  • Tensions between the US and China rise again.

Markets continue to show their dislocation from the real economy as stocks closed in the green on Monday despite mass protests in the US, that in some cases turned violent, increasing tension between the US and China, and the disappointing news of virus drug test results. While many of the protests have been peaceful, looting and rioting occurred across the US hurting many local businesses. The extent of this damage is not currently known but is especially impactful considering the US is attempting to come out of a lockdown which has severely affected many businesses already. Protests led President Trump to enter the White House Bunker on Friday night as demonstrations raged outside. Tensions again increased between the US and China as Trump was labelled a hypocrite by China over his stance on US protests, in light of his position on the recent Hong Kong protests. In a large trial, results for a potential Covid-19 drug created by Gilead Sciences Inc. showed only a short term benefit.
 
Growth in inflation for the Eurozone fell to 0.1% in May. In January, growth stood at 1.4% as the ECB were struggling to increase the inflation rate towards the 2% target. The pandemic has now dragged on price growth and risks putting the Eurozone under deflationary pressure. If a period of deflation occurs, it would pose a serious hurdle to economic recovery. Deflation will make reducing the unemployment level more difficult as price decreases will hurt the income of producers. The real value of debt for corporates and governments will increase as debt costs will remain fixed while income and tax payments fall. All eyes will be on the ECB’s June meeting to see what steps will be taken to curb deflation.
 
Tensions between the US and China have stepped up again on Monday as China hit out at Trump labelling him a hypocrite. The attack on Trump comes after he supported Hong Kong protesters and is now condemning protesters in the US. On Friday, investors were relieved at the US’s muted response to China imposing the national security law on Hong Kong as the US announced that it would revoke special trading privileges. Investors were expecting a much harsher retaliation. However, with the fresh tension caused by China labelling Trump a hypocrite, Trump may take aim at China once again.

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

Global Market Update
(as at close of markets 01/06/2020)