Weekly Market Wrap 18-22 /May/2020

  Marius Paun | London, UK | Senior dealer | Friday 22nd May 2020

We saw the US Federal Reserve Chair Jerome Powell over the weekend saying he could see peak unemployment to reach 20%-25%. He also reassured the markets the Fed is not out of ammunition reiterating QE to infinity.

US biotech company Moderna showed promising results regarding its coronavirus vaccine trials claiming that 45 subjects got immune after the second dose. It sparked a sharp rally in the stock markets initially, but some of the gains were given back after some specialists challenged the stats.

We also had the meeting minutes form the last FOMC meeting on April 28-29 and the consensus was that coronavirus ‘would weigh heavily on economic activity, employment and inflation in the near term as well as posing considerable downside risks over the medium-term’.

China continues to report positive news with a government official saying that over 95% of the major industrial firm’s employees have now returned to work.

Following the US chips restrictions to Huawei, the Chinese President Xi Jinping called on the global community to keep supply chains open. At the same time Chinese Premier Li said his country will not set down a target for economic growth this year.

Back in the UK, Times newspaper reported that David Frost, chief negotiator with the EU said the British side is prepared to walk away as Brexit talks flare up once again. Elsewhere the UK government announced plans for £30 billion tariffs cuts when Britain leaves the EU, for agricultural products and cars they will be maintained though. The pound sterling is under a bit of pressure for the last few sessions after Bank of England Governor Andrew Bailey said that negative rates are under ‘active review’ and ‘we don’t rule anything for policy’. Really?… we thought BoE is in the ‘no negative rates camp’.

The euro was trading higher against the US dollar on Friday afternoon just above 1.09 mark spurred by efforts form Germany and France to build a 500 billion recovery fund. However, not everyone seemed to be in agreement after Austria, Netherlands, Sweden and Denmark insisted the funds should be made as loans not as grants.

Meanwhile, the European Central Bank chief economist admitted that in an extreme scenario the eurozone’s GDP could fall by 12% in 2020. Inflation was less than expected but remains in positive territory with Eurozone April CPI coming in at +0.3% vs +0.4% anticipated.

Gold reached a fresh seven-year high on Monday at $1765.14 and its outlook is bullish again. The precious metal was supported by the Fed comments of standing by to offer extra liquidity if needed as well as the increased sentiment that at some point inflation could return given the stimulus.

US oil prices continued their good run with July contract rising from a low of $30.37 to a high of $34.62 per barrel. A drop in weekly crude inventories by 5 million barrels versus predictions for 1.7 million barrels build was again mentioned as a possible sign the glut is starting to ease.