Market Update: Week Starting 11/05/2020

Market Update: Week Starting 11/05/2020

Written by: Connor Campbell

Update 14-05-2020: Markets sink as Trump suggests he could ‘cut off the whole relationship’ with China

Things got really nasty on Thursday afternoon, the growing concerns surrounding the US-China situation and another sharp increase in unemployment causing an intensification of the session’s already pronounced losses.

Having fallen close to 1000 points in the last couple of sessions, the Dow Jones shed another 300 points after the bell, sinking back under 22950 for the first time in 5 weeks.

This as Donald Trump continued to stoke the fires of a feud with Beijing, stating he is ‘very disappointed in China’. Going on to discuss last year’s laboriously created trade deal, the President claimed that ‘the ink was barely dry and the plague came over. And it doesn’t feel the same to me.’

The point that most alarmed investors was Trump’s suggestion that he could ‘cut off the whole relationship with China’. That’s a huge, likely spurious claim; however, sooner rather than later there will be consequences to Trump running his mouth, something he looks set to continue to do as the US election draws closer. 

Of course it didn’t help that another 2.981 million Americans filed for unemployment in the week ending May 9th, taking the total to around 36.5 million. With the Dow incurring big losses, Europe lost its head. The FTSE, which as recent as Tuesday had crossed 6000, sank 200 points to 5700. The DAX lost 2.5% as it plunged under 10300, while the CAC found itself languishing the wrong side of 4250 following an 100 point drop.

Update 13-05-2020: Dow Jones joins Europe in the red as Powell seems to rule out negative rates

The Western markets were unable to shake the day’s losses, finding little to celebrate once trading got underway stateside.

Addressing a webinar organised by the Peterson Institute for International Economics, Federal Reserve chair Jerome Powell expressed his reluctance to implement negative interest rates, stating that they are not something the central bank is looking at (despite Trump’s recent urging that the Fed do exactly that).

If that weren’t enough of a blow to stimulus-hungry US investors, Powell warned that the country is facing a ‘prolonged recession’ that could cause ‘lasting harm’, highlighting that the ‘jobs gains of the past decade’ have been erased in a matter of weeks.

This stark dose of reality, combined with the warning from Dr Anthony Fauci that the US faces ‘serious consequences’ if it reopens its economy too early, has punctured the optimism that had repeatedly lifted the Dow Jones above 24000.

At one point the Dow was down as much as 200 points, before halving those losses. That still leaves it back under 23670, well off Monday’s 24500-crossing May highs.

Fearing a second wave of coronavirus cases in the likes of Germany, the Eurozone remained the worst hit region on Wednesday. The DAX shed 200 points to lurk under 10650, while the CAC dove 2.3% to 4375. Keeping its losses on the lower end of the spectrum, at least in comparison to losses seen in the rest of Europe, was the FTSE, which fell 55 points, taking it back below 5950. The index’s decline could have been far greater given it was confirmed the UK economy contracted by 2% in Q1; however, the pound has shared some of that burden, falling 0.3% against dollar and euro alike.

Update 12-05-2020: FTSE stands head and shoulders above peers thanks to Vodafone, furlough scheme

It was an anxious session for all bar the FTSE, which held onto the gains seen after Rishi Sunak’s furlough scheme announcement.

The threat of a second wave of coronavirus cases in those countries that have started to reopen, the ongoing tensions between the US and China, and the abject way in which Donald Trump has handled the crisis conspired to keep the Dow Jones fairly quiet.

At various points before the open it was expected to both rise and fall by 100 points. Instead it added 0.1%, lurking around 24250 as it struggled to work out what direction made the most sense.

The Eurozone was similarly undecided. The DAX clung onto a handful of points, while the CAC, perhaps fearing that France may end up in the same situation as Germany post-reopen, dipped 0.3%.

Standing tall was the FTSE, which climbed 1.2% as it repeatedly banged its head against its 6000 ceiling. There were a couple of major factors at play helping the UK index out. The extension of the government’s furlough scheme until the end of October was a clear boost, even if questions remain about companies sharing some of the cost from August onwards. Meanwhile an 8.4% rise from Vodafone provided the FTSE with that extra bit of pizazz, the telecommunications company bucking the recent trend by maintaining its dividend in the face of the covid-19 pandemic (and the looming threat of a O2/Virgin mobile merger).

Update 11-05-2020: Threat of 2nd wave in reopened countries erases early lockdown-easing optimism

The lockdown-easing optimism disappeared on Monday, as investors processed the potential dangers of lifting measures too early.

With the threat of a second wave of covid-19 in re-opening nations like South Korea, Germany and, perhaps most importantly, China, whatever positivity was found at the start of the day was long gone by Monday afternoon.

The Dow Jones – which surged following a set of nonfarm figures last Friday that played fast and loose with the phrase ‘better than expected’ – shed 200 points after trading began stateside, forcing the index back towards 24100. You would think US investors would be even more alarmed given that a second wave is potentially hitting countries that actually dealt with the pandemic using widespread and effective measures. God knows what’ll happen with America’s incoherent lockdown-lite.

The Eurozone was perhaps the worst hit area, with the DAX and CAC down 1% and 1.4% respectively. That sent the German index back to 10800, while forcing its French sibling under 4500.

The FTSE was something of an outlier, keeping its losses to just 0.2%, despite the mess made by Boris Johnson’s government in trying to explain what happens next. The UK index is likely benefiting from playing catch-up after last Friday’s VE Day celebrations, alongside the losses incurred by sterling, which fell half a percent against the dollar and 0.3% against the euro.

Source: SpreadEx