World markets posted weekly gains across the board. Investors opted to focus on the optimism of progress in the reopening of the economies in some U.S. states and key regions in Europe. They also appeared to shrug off dismal data like the US April labour report and a string of other negative economic news. Headlines that top U.S. and China trade negotiators were expected to meet to work on implementation of the first phase of the trade agreement and recent signs of recovery in China also aided further sentiment.
US stocks recorded solid gains for the week, with energy and technology stocks leading the way.
On the economic front, a breathtaking 20.5 million Americans lost their jobs in April, causing the unemployment rate to spike to 14.7%, the highest since the Great Depression. However, the figure was expected and investors seemed to take hope that the economy was bottoming. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq posted their first weekly advance in three.
In Canada, the S&P/TSX Composite Index extended its winning streak to seven weeks. In Brazil, a rally on Friday trimmed losses for the week. Brazil's central bank on Wednesday cut its benchmark interest, the Selic rate, from 3.75% to 3.00%, to cushion the economic blow of the pandemic. It was the seventh consecutive cut to the rate in a cycle that began last year.
Asian stocks were in positive territory reassured by lifting of lockdown measures. Japanese equities gained in the holiday-shortened trading week. China A-shares resumed their gradual uptrend as stronger-than-expected Chinese trade data for April appeared to buoy sentiment. Merchandise exports increased 3.5% (year on year) in U.S. dollar terms in April, up from a 6.6% decline in March.
Adding to optimism, reports suggested Chinese Vice Premier Liu He spoke with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Friday. The two officials pledged to create favourable conditions for the implementation of the phase one trade agreement between Washington and Beijing signed in January. In Australia, the sharemarket capped the week up 2.8 per cent as the government has issued a 3-step plan for relaxing pandemic-related restrictions by July.
Equities in Europe ended mostly higher on hopes lockdown exit strategies would promote a gradual economic recovery. Also, recent earnings reports suggested potential signs of stabilsation from the severe impact of the pandemic and renewed U.S.-China tensions appeared to cool a bit.
However, dire data continued to hit the tape. The European Commission (EC), in its spring forecast, said that the coronavirus crisis would cause the EU economy to shrink by 7.5% in 2020. Meanwhile, data showed that German new factory orders dropped 15.6% in March, UK services PMI plunged to 13.4 in April, Eurozone PMI fell 54% in April and unemployment in Eurozone will rise to 9.6% in 2020.
In central bank related news, Norway’s central bank unexpectedly cut its key interest rate by 25 basis points to 0%, the Bank of England (BoE) left monetary policy unchanged but predicted that gross domestic product would drop 14% in 2020. European Central Bank President Christine Lagarde warned that the Eurozone's GDP is expected to fall approximately 8% in due to the coronavirus-caused crisis .
Of note, Germany launched its first syndicated bond sale since 2015 on Wednesday, raising 7.5 billion euros($8.1 billion), as the country is in need for the extra funding because of the coronavirus pandemic. Meanwhile, Germany's constitutional court handed a three-month ultimatum to the European Central Bank (ECB) to justify its government bond purchases.
Investors appeared to reconcile themselves to the depth of the economic downturn and focus instead on the reopening of parts of the economy. But the stockmarket’s rosy view on current economic matters should make everyone uneasy. With so much uncertainty around and behind this downturn, there is no blueprint for what lies ahead. Budgetary and monetary measures to stop the world economy slipping into total collapse are not enough to get things back to where they were and the central question remains "how long will it take to recover?". It's a long, long way.
What’s ahead next week:
May consumer confidence and April employment change.
Manufacturing sales (March)
Existing home sales (April)
April lending statistics, inflation figures, industrial production, fixed asset investment and retail sales.
April consumer price inflation and trade balance. Japan—April machine tool orders. Eurozone—Q1 GDP, March trade balance and industrial production.
April same-store sales and home prices, as well as March manufacturing/industrial production, and Q1 GDP
Consumer and Producer Price Indices (April)
Import and Export Price Indices (April)
Retail sales (April)
Empire State Manufacturing Survey (May)
Industrial Production and Capacity Utilization (April)
Univ. of Michigan Consumer Sentiment Index (May)
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The content of this review is for informational purposes only and should not be interpreted as specific investment advice.