Bank governor says central bank ‘ready to take action’ after GDP contraction
Over the weekend, following a week in which the FTSE 100 fell by just shy of 6% and it was revealed that the UK economy shrank by 20.4% in April, Bank of England governor Andrew Bailey said that the central bank is “ready to take action”. Bailey said that the record plunge in the economy was in line with expectations, and while he noted that there are signs of the economy coming back to life, he warned that “we are still very much in the midst of this”. By comparison, during the Global Financial Crisis of 2008 and 2009, UK GDP never shrank by more than 1% in a single month. Today will bring another round of reopenings, when shops in England selling “non-essential” goods such as clothes and electronics will be allowed to begin trading again.
On Friday, the FTSE 100 made back a small portion of its 4% Thursday loss, with the bounce back led by education publisher Pearson and outsourcing firm Centrica, along with a mixture of travel and financial names.
- FTSE 100: +0.5% Friday, -19.1% YTD (-5.9% last week)
- FTSE 250: +0.6% Friday, -22% YTD (-6.3% last week)
What to watch
UK unemployment data: On Tuesday, the April unemployment rate and average earnings figures will be released in the UK, where economic data tends to come through around a month behind the US. The May unemployment claimant count will also be reported, where economists are anticipating that the figures will show an additional 850,000 claimants in May. Bear in mind, that the UK government’s widely used job retention scheme is currently acting as a dam, preventing layoffs that may ultimately still happen from feeding through into employment figures — as employers using the scheme can’t let staff go while they are receiving the support.
Brexit talks: UK Prime Minister Boris Johnson will be holding a meeting with European Union leaders today after several rounds of discussion that have left negotiations at a stalemate. Johnson is expected to demand more rapid progress, as British negotiators have been accusing European officials of dragging their feet. If a deal is not struck, the UK and EU will find themselves trading based on World Trade Organisation terms from January 1, meaning tariffs on goods.
Ashtead Group: London-listed industrial equipment rental firm Ashtead, which is seen as a bellwether of industrial activity, reports its latest set of quarterly earnings on Tuesday. The firm’s share price is down just 2.2% year-to-date, well ahead of the broader market, following a near 30% rebound over the past three months. Currently, analysts are almost evenly split between a buy and hold rating on the stock.
Recovery hangs on a knife edge
As lockdowns come to an end in nations around the world, economic and market recovery hangs on a knife edge. Thursday’s sell-off serves as a warning to investors as to just how quickly sentiment and share prices can snowball on concerns about a second wave of the coronavirus and a return to stricter lockdowns. That probability is increasing in the US, as the rapid loosening of restrictions in certain states and breaches of phased reopening guidelines are leading to surges in cases. The ending of lockdowns was always going to be a delicate balancing act between public health and economic harm, but any consensus that builds around the idea that reopening has happened too soon will likely prove damaging to share prices.
Crypto corner: Survey shows over a third of institutions have crypto exposure in US and Europe
Cryptoassets are held by more than a third of institutional investors in the US and Europe, a survey has shown.
According to a report from Fidelity Investments, 36% of some 774 surveyed family offices, pensions and funds have some sort of exposure to cryptoassets – whether that be through spot holdings or derivatives.
Bitcoin is the most popular holding, with 25% of those surveyed stating they have long-exposure to BTC, whereas 11% have exposure to Ethereum.
Nonetheless, both major cryptoassets were in the doldrums this morning in early trading amid a general risk-off trade in markets. Bitcoin was down 3.4% at $8,982, while Ethereum was off over 5% at $218. Ethereum has taken the brunt of heavy selling in the last few days, the price falling 10% in the last five days.
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