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Tech stocks continued their rally on Thursday, pushing the YTD return on the Nasdaq up to +0.08%. Ratings agency Moody’s is set to release an update on the creditworthiness of Italy on Friday. Standard & Poor’s and Fitch have already
released updates, with Fitch downgrading Italy’s debt to one notch above “junk” bond status. If Moody’s decide to downgrade Italy’s debt to “Junk” status, they will be the first to do so. The main issue for Rome is how Moody’s view the increasing debt the
country is taking on to weather the crisis. If a downgrade occurs, we will see a shift from private to public holders for Italian debt, as pension funds and insurance companies will have to sell their positions.
The figure for Americans applying for unemployment benefits has risen to over 33 million, with a further 3.2 million applied for benefits last week. Despite the figures still being record numbers, it appears that the number applying
for benefits is stabilising, though these figures remain the worst reading since the great depression. A backlog in applications could have also previously understated the true number of Americans applying in recent weeks. Although a rise in employment is
expected once the economy reopens, time will tell if the same jobs are there to stay as there remains the possibility that businesses will not survive. Rental strikes are expected in the US as households can no longer afford rent. Rental figures for April
only showed a -4.1% decline yoy, however, the economy was only beginning to shut down when rent was due. There is already a temporary ban on evictions in the US and there are now talks on the possibility of cutting rent for the remainder of the crisis. The
decision to completely cut rent could have severe knock-on effects as landlords also have overheads and will not be able to pay lenders who in turn will not be able to pay investors.
The Bank of England has warned of the worst recession in 300 years as it forecasts output to drop by over 30% for the first half of the year. The recession forecast by the Bank of England would be the fastest and deepest recession
since 1709, the year of the ‘Great Frost’. The Great Frost saw Europe freeze overnight, far beyond normal levels of cold snaps, and remain frozen over for three months resulting in food shortages and a huge number of deaths. The Bank of England also decided
on no new stimulus despite the forecast and encouraged banks to keep lending to keep economic activity levels up and help the economy recover faster. The policy decisions are a sharp contrast from the financial crisis where lending was restricted. The Governor
of the Bank of England was subject to heavy criticism as despite such grim forecasts, he expected a V-shaped recovery. Household consumption fell by over 30% since the lockdown began and damage to the economy is expected to be much more persistent than the
expectations of the governor of the Bank of England.
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