Risk assets continued recovering last week as investors disregarded lousy economic data, the mixed bag of first-quarter earnings releases and renewed bickering between China and the US. Companies also slashed guidance. The consensus now forecasts a 50% plunge in European corporate earnings for the second quarter. Last week the S&P 500 was up 3.5% and Nasdaq gained 6%. In Europe, stock markets were broadly unchanged, pinned back by widely divergent data and investors’ appraisals of the various national plans to ease lockdown restrictions.

In the US, the Bureau of Statistics released the worst employment report in a century, showing the unemployment rate soaring to 14.7%. A total of 20.5 million jobs were destroyed in April. To put this figure in perspective, companies shed a combined 17 million jobs during the last seven recessions. The latest surge in the jobless rate came despite the USD 700bn from the Paycheck Protection Program, aimed at keeping employees on the payroll. Reassuringly, for the vast majority of the newly unemployed (78%), their status is likely to be temporary.

Concurrent with the pandemic, the weightings of big tech in the S&P 500 – which had already been increasing during the pre-coronavirus era – have risen further. Social distancing measures and smart working have produced a kind of ‘surviving of the fittest’ mentality as investors consign travel & leisure groups, airlines and oil refiners to the evolutionary dustbin.

At the week begins, confidence in ‘Phase 2’ of the China-US trade deal and expected further monetary stimulus from Chinese authorities are leading equity markets higher. Countries around the world are proposing their own plans for easing lockdowns. Meanwhile European vehicle sales seem to be stabilising after dipping by only 5.5% in April. The Eurozone agreement reached on Friday offering loans at preferential rates for member countries to finance their fight against the coronavirus is also having a positive effect.

Regarding monetary policy, the People’s Bank of China has said it wants to use tougher stimulus policies to counter the dampening effect of the pandemic on economic growth. This coming Wednesday Fed Chairman Jerome Powell’s speech on the state of the economy will be watched closely to see if he moots the possibility of negative rates – an option that the Fed has so far rejected but which the market seems to favour, given the route that yields are currently taking.
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