Markets shrugged off geopolitical concerns last week, and moved higher once again as economies reopening stoked optimism. The majority of countries continued to ease restrictions with more sections of the global economy beginning to open up once more. On the data front U.S. durable goods orders fell 17.2% in April and Q1 GDP figures were revised downwards. However, markets preferred to look at forward-looking indicators as consumer confidence readings in both the U.S. and eurozone climbed last month, albeit the figures were climbing from a very low base. In fact, incomes in the U.S. posted the largest month-on-month gain on record, largely as a result of government pandemic payments.
Actions from policymakers accentuated the good mood for markets with a proposal in the eurozone consisting of grants of €500 billion and loans totalling €250 billion from the European Union to member states making headlines. The ECB also meets this week where there is an expectation of further action. Inflation has declined to 0.1% year-on-year and is well below the 2% target and this may lead to some further flexibility from the ECB regarding the parameters of the ‘PEPP’ programme.
Geopolitical developments were altogether less positive last week, as tensions between the U.S. and China began to rise. The initiation of legislation to formalise new national security laws in Hong Kong brought widespread condemnation from Western powers whilst the U.S. Congress passed a bill that will sanction officials involved in Chinese violations against the Uighur ethnic minority. U.S. domestic tensions also continue to rise, as protests originating from the death of George Floyd in Minneapolis reached every major city.
Finally, the threat of a no-deal Brexit is coming back onto the agenda as U.K. negotiators insist that there will be no further extension to the negotiations due to end on 31st December 2020. The EU are willing to extend the transition period by another two years, but so far there appears to be little appetite from the U.K. CLICK HERE