By browsing our website, you accept the use of cookies. Our use of cookies is explained in our privacy policy.
Click the PRODUCTS & SERVICES button on the left to expand it again.
Ok. Got itThe gradual reopening of major economic hubs continues to gain pace as new infections pass their peaks. Read our latest market review.
Rebound extended
The gradual reopening of major economic hubs continues to gain pace as new infections pass their peaks. Although the transition has not been smooth and in some cases may still be too early, it has nonetheless started the rebuilding process. Several countries in mainland Europe are already making plans to reopen to tourists in the coming summer months; echoes of more normal times, even though fewer people may want to make these journeys.
Global markets maintained their strong momentum in May, comforted and spurred by the common denominators of fiscal support and easy monetary policy. Progress on vaccines and Coronavirus treatments prompted wild swings in the biotechnology sector, while headline returns hid an unequal recovery between sectors. The S&P 500 gained +4,8% over the month, defying weak fundamentals and bringing the 12-month returns into positive territory at +12,8%. The MSCI World Index ended the month up +4,9%, while emerging markets stalled at +0,8%.
The US Federal Reserve, BOE and ECB all kept interest rates unchanged at their policy meetings, in each case close to the zero-lower bound. Policymakers indicated a willingness to respond to worsening conditions and are arguably more likely to lean on transmission via asset purchase programmes and the banking system, given the low level of interest rates. With the Bank of England issuing its first negative yielding bond at -0,03%, the debate on negative yielding bond markets, negative rates and merits of modern monetary theory is likely to remain prominent. Against this backdrop, global bond markets edged forward, with the Barclays Global Aggregate Index gaining +0,4% in USD.
The Frugal Four
The Eurozone printed a Q1 GDP number of -3,8%, the fastest contraction on record, as Germany, France and Italy all entered recession. The ECB President, Christine Lagarde, has warned that the economic contraction in the region could be as much as -8 to -12%, a downturn double that of the global financial crisis.
A coordinated fiscal response in Europe has been hard to come by, given the wide disparity in circumstance and priorities of the underlying countries. The European Commission is calling for a €750bn recovery fund backed by joint issuance, which will provide €500bn in grants and €250bn in loans. The recovery fund has been supported by France and Germany but has met resistance from more frugal countries such as Austria, Denmark, Sweden and the Netherlands, also dubbed the Frugal Four. Moneys from the recovery fund, branded ‘Next Generation EU’, may carry some conditions, such as a focus on ‘investment and reform priorities’ including the digital and green economy. All 27 members including the Frugal Four that would prefer loans over grants, still need to sign off. Solidarity in the Eurozone is required, especially regarding the hard-hit countries like Italy and Spain, making this a pivotal moment for the bloc to bridge some of the historic divides.
Autonomy
Geopolitical tensions flared up in May. China introduced plans to impose a national security law on Hong Kong, bringing into question once again the ‘one country, two systems’ framework, which has long underscored the constitutional independence of Hong Kong and the rule of law. The UK and the US have publicly spoken out against the move, with US Secretary of State, Mike Pompei, declaring that the US no longer viewed Hong Kong as autonomous from China. A meaningful statement that may pave the way to the rescinding of special trade privileges that Hong Kong enjoys. Sanctions have also been floated. This threatens the viability of Hong Kong as a global financial centre and may create pressures for the Hong Kong Dollar. This is only the latest salvo by President Trump against China – we expect more as the East and the West each looks to assert their economic autonomy in a post-crisis world.
Want to know more? Here's what to do: