The markets continue to trade “risk on” with optimism that there is finally light at the end of the tunnel in the global battle against the Covid-19 pandemic. Even despite the not disastrous but far from optimistic earning season over the last few weeks, as well continued poor data the stock market continues to grow in value, as the S&P grinds towards the 3000 mark.
We opened this week strongly with the news that Italy and France have seen the lowest daily case rates since early March, and despite the total global cases now surpassing 4 million, daily cases are notably turning even in the US and UK which have been two of the worst affected countries. So now concentration has been switched to the pace of lifting lockdowns and stimulating economies.
In the UK last night PM Boris Johnson addressed the nation in a pre-recorded video that seemed to skirt the crucial details. This missing detail should be forthcoming when he addresses Parliament today and unveils his 50-page dossier. But it looks like the PM will not be unleashing the workforce at this stage, with him able to use experiences of those ahead in the virus curve like Germany, who released restrictions only to see a surge in new infections before re-imposing restrictions.
In the UK there is a real feel that the public seem more comfortable taking things slowly, with perhaps an element of complacency with the furlough scheme as was highlighted by Chancellor Sunak last week, so it is thought we see a tweak to the scheme with a reduction from 80% of salaries to just 60% and potentially a part time element to it.
In the US they almost have the opposite public opinion, with growing elements of the population urging the Government to get them back to work, with the acceptance that this will result in further infections. Last Friday saw the US employment data which was unsurprisingly poor, with over 20 million jobs lost and an unemployment rate of over 16%. Over the weekend the Federal Reserve's Kashkari warned that the worst could be yet to come.
Despite the data and infection rates market participants are optimistically seeing the potential for value and given the security of the Central Bank stimulus backstop, are buying stock. In the currency markets the safe haven positions in the Japanese Yen and Swiss Franc are starting to be unwound and after a few weeks of heavy pressure even Oil seems to be putting a bottom in as it sits just below $30 per barrel.
This week there is little in the way of Central Bank activity with just an update from New Zealand. In the UK we will be looking out for PM Johnson's address to Parliament today as well as any update in the Brexit negotiations which reignite today with EU ministers warning at the weekend that hard Brexit could be back on the UK’s agenda. In the Eurozone, developments regarding the German court ruling last week that the ECB had overstepped their mandate with Quantitative Easing bond purchases, whilst not immediately impactful, it does open the door to a potentially damaging inquest.
Again, key focus remains on infection levels and death cases for those countries looking to lift lockdown measures, and of course the maintaining of safe levels in those who have started to ease restrictions.
The week ahead: 本周展望
Monday – Little notable data. PM Johnson unveils phased back to work plan
Tuesday - US CPI Inflation data
Wednesday – Reserve Bank of New Zealand Interest rate setting meeting. UK GDP and Industrial Production data.
Thursday – Australian Employment data and US weekly Jobless update. German CPI
Friday – Industrial Production and Retail Sales from China, German GDP and US Retail Sales