I think we all know now that reopening the economy will be a lot harder than shutting it down. Boris Johnson last night set out a plan of sorts; one that requires individuals to make their own decisions. Even in lockdown the PM is retaining his libertarian principles. But businesses and employees want clarity and certainty. Fears of second waves in China, South Korea and Germany highlight the concern about reopening too swiftly.
Equity indices are close to the top of their recent trading ranges. The Nasdaq closed the week up for the year. The S&P 500 is less than 10 per cent off its highs after rallying 3 per cent last week. The FTSE 100 and other European indices made up some ground, pushing up 3-4 per cent. The VIX closed the week under 30. Most Asian markets nudged higher and futures indicate European markets on a firm footing at the start of the new trading week. The FTSE 100 is flirting with 6,000.
Data will continue to deteriorate as the surveys start to reflect the worst of the damage. April’s nonfarm payrolls on Friday showed 20.5m people lost their job last month and the unemployment hit a record 14.7 per cent. May will be even worse. Backward looking data will be largely, but not entirely, ignored by markets as participants focus on the policy response and the speed of exiting lockdown.
On the first part, China’s central bank has signalled more policy support measures and a cornucopia of central bank speakers this week will be in focus, with Fed chair Jay Powell to speak on Wednesday and the Bank of England’s Andrew Bailey the day after. Also watch for the Fed’s Bostic and Evans today, and the Fed’s Kashkari, Bullard, Harker, Quarles and Mester on Tuesday. The ECB’s chief economist Philip Lane speaks on Wednesday. The question remains how long equity markets are able to defy the gravity from the real economy.
Following the German constitutional court ruling on the ECB’s bond buying programme, the EU is closing ranks. Ursula von der Leyen said the final word on EU law is spoken by the ECJ and the European Commission may start legal proceedings against Germany.
Meanwhile the pound could feel some heat as the third UK/EU negotiating round starts today. The clock is ticking and realistically it’s going to be exceedingly difficult to get a deal done in time.
Bitcoin tumbled over the weekend as the third halving event looms. The only two previous halving events have been linked with increased volatility. At the open bitcoin futures tested $8,600, the Apr-May support, and have failed to make any real attempt to rally. Bears looking for another leg lower to $7,600.
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Neil Wilson is chief markets analyst at Markets.com
