Weekly Market Insight

Latest Economic & Market Update 7th May 2020

07th May 2020

Latest Economic & Market Update: Technology companies continue to perform during new stay at home era | UK Treasury debate easing job retention scheme

Latest Economic & Market Update
Good Afternoon, it is 7th May 2020 and here is your economic and market update from BlackBee
Today we are going to focus on:
> Technology companies continue to perform during new stay at home era.
> UK Treasury debate the easing of job retention scheme.
> ECB best not to respond to Germanys Constitutional Court.  

With staying at home becoming the new norm, the expectation remains among investors that technology companies will remain the strongest performing companies. Wednesday saw technology stocks push higher again as the Nasdaq was up over half a percent for the day, leaving the year to date return at -1.32%. A new report released for private payrolls showing that over 20.2 million jobs have been cut in the US, pushing the S&P 500 and the Dow Jones Industrial Average lower. Oil prices have continued to climb for the last week on hopes of the economy reopening, resulting in increased demand however this came to an end yesterday as the West Texas Intermediate closed the trading session down over 2% at $23.99, with investors retreating due to storage capacity still posing a risk. The US Treasury stated on Wednesday that it plans to increase the size of three, ten and thirty-year bond auctions to record levels, pushing the yield on the 10-year treasury to nearly a 3 week high at just over 0.7%.

Approximately one-fifth of the UK workforce have been furloughed. In addition, over 2 million people have applied for unemployment benefits. The job retention scheme in the UK pays 80% of an employee’s wages,  supporting smaller businesses and stabilising unemployment levels. The UK Treasury, however, is now debating the issue of phasing out the job retention scheme, a challenge many countries will have to overcome in the coming months. The furlough scheme can provide a false sense of security to employees, who could feel that their job is safe, unaware of the fact that the company they work for may be struggling and the job they have may not be there once the retention scheme ends. It is important that businesses get clear guidance on the conditions they can open up under from the government so they can plan for reopening to hit the ground running. The path of how to phase out the job retention scheme is of huge importance to prevent a sharp rise in unemployment.

The German Constitutional Court has given a three month deadline for the ECB to justify its purchases of government bonds. It would be in the best interest for both Europe and the ECB, that the ECB does not respond. If they do, it could severely affect the ECB’s independence and open it up to legal cases from other national courts in the Eurozone. The ECB will be restricted in measures they can take to protect the Eurozone if they do respond. For example, if, in the future, the ECB makes a policy change that one country doesn’t agree with, they could be challenged on the change, and the ECB would not be able to implement policy in a timely fashion. The ECB should only answer to the European Court of Justice. The ECJ ruled in 2018 that the bond buying was legal. If the ECB respond to Germany’s Constitutional Court, it could result in the ECB being forced to sell back government bonds. The challenge from the German Constitutional Court has resulted in the Euro losing nearly 2% in value to the US dollar since the beginning of the week.

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