In order to restart the economy, the European Commission announced a “recovery fund” of 750 billion euros, while the European Central Bank increased the bond purchase plan by 600 billion euros. Individual countries also adopted different economic stimuluses, varying from the radical permanent basic income policies in Spain, to multibillion Euro fiscal stimulus in Germany and Italy alike. However, due to their export dependence, it is expected that the continued epidemic on the global scale will put pressure on Europe’s recovery.

From the economic indicators’ point of view, we can claim that while the European economy has bottomed out, but it is still far from full recovery. Despite rebounding from the previous low, PMIs, various sentiment and confidence indicators are still in the negative territory, which reflects a contracting economy. Given the limited manoeuvrability of the European Central Bank, overhanging Brexit concerns, and continued weakness in business confidence, we would hold back from investing in the region in the short term.

As the pandemic ended its ravage in the country, the “Two Sessions” were finally held in Beijing. During the meetings, key points to note for the year include no GDP growth target, a much higher M2 money supply target, and setting a higher budget deficit target. These are expected to outline the Chinese government’s developmental directions for the year: a further consolidation of the economy with no growth targets, more focus on the physical economy with increased budget deficit, plus a looser monetary policy with the increased money supply, we could potentially see RRR cuts or even falling interest rates in the year.

Economic indicators seemed to agree that the Chinese economy is essentially back to normal, PMIs have recovered, all returning into the expansion territory, potentially marking an end to the pandemic induced recession. That said, external risks remain with Sino-US tensions running back to trade war levels, which does dampen the optimism after the recovery. Although external risks remain, which could pressure the equity markets in the short to mid-term, we still expect the Chinese economy to further stabilize as economic activities pick up.

United States

Despite the negative news, markets retained its optimism, and global equities continued to trend up, the NASDAQ index even briefly hit a new intraday high, but failed to close above that. Over the past 5 days ending Thursday, 3 major equity indexes rose between 2.63% - 3.47%. Against the backdrop of rising Sino-US tensions, riots broke out in many cities in the States, State governments ordered curfews to curb the situation, yet it remains unsubdued. Moreover, the latest epidemic development in the United States remains tough, with the latest infection figures reaching 1.87 million, alongside more than 108,000 deaths. Some of the economic data hinted at a bottoming out US economic outlook, as the ISM manufacturing index rebounded from the low of 41.5 last month to 43.1 in May. On a side note, it was reported that the White House officials in the United States are drafting a stipulation that the scale of the next round of economic stimulus plan should not exceed US$1 trillion. Next week, the Federal Reserve will hold an interest rate meeting on Thursday, market expects it to be kept unchanged; In addition, the United States will also release data such as CPI and market sentiment.

 Europe

In anticipation that the European Central Bank (ECB) may increase the scale of asset purchases, European stocks performed relatively well in recent weeks. The final announcement from ECB exceeded expectations in the scale of asset purchases, further improving market sentiment, driving European stocks up. Over the past 5 days ending Thursday, anticipating capital injections from the ongoing quantitative easing, German and French indexes went up 6.63% and 5.04% respectively, while the UK index gained 1.97%. After the ECB interest rate meeting, the policy rate remained unchanged, while the scale of the Pandemic Emergency Purchase Programme (PEPP) was increased by 600 billion Euros, and the plan period was extended to the end of June 2021. The market will focus on whether the funds are sufficient to relieve the downward pressure on the European economy. The Eurozone will announce the final figures of 2020 Q1 GDP next week.

China

The Hong Kong and Chinese stock markets performed well over the week, the CSI 300 index rose more than 3% in the week, while the Hang Seng Index gained over 7%. It was reported that China has suspended imports of certain US agricultural products, while the US further toughened its stance towards China, potentially jeopardizing the earlier first stage Sino-US trade agreement. Despite the deterioration of Sino-US trade relations, anticipating various fiscal measures supporting the economy, speculation in the market continued. The expected dual listing of China concept stocks in HK further supported the stock price of the Hong Kong Stock Exchange, boosting the local market performance. Next week, China will release data such as the May consumer price index, aggregate financing, and new RMB loans.

<Harris Fraser Research Team>

US

The Sino-US relation grew tenser by the day, but global equities still went up over the week. Over the past 5 days ending Thursday, the Dow rose 3.36%, the S&P 500 gained 1.96%, while the NASDAQ slightly fell 0.07%. As for the epidemic situation, cumulative covid-19 cases has exceeded 5.8 million, with the latest infection epicentre moving to developing countries such as Brazil and India. Japan, which saw its outbreak earlier, has announced an end to the state of emergency. On the economic front, the US 2020 Q1 QoQ economic growth annualized was revised down to -5%. In the latest report, New York Federal Reserve officials claimed that US companies lost $1.7 trillion in market value due to the Sino-US trade war, the report further expects that the investment growth of these affected companies will drop nearly 2% YoY by the end of 2020. Next week, the US will release the May figures for Nonfarm Payrolls and also the ISM non-manufacturing index.

 Europe

This week, European stocks outperformed global markets, the UK, French, and German indexes went up 3.38%, 7.35%, and 6.39% respectively over the past 5 days ending Thursday. The UK and the EU will continue trade negotiations next week, the EU Chief Brexit negotiator Michel Barnier expects a conclusion by then. Earlier, the EU trade commissioner Phil Hogan claimed that the UK might have given up on reaching a trade agreement. On the economic front, there seems to be signs of improvement, with the Eurozone economic confidence index rebounding from the earlier record low. Next week, the European Central Bank (ECB) will hold an interest rate meeting, economic data such as unemployment rates and manufacturing PMIs will also be released.

China

Against the background of rising Sino-US tensions, Hong Kong equity performance has been affected, but still stayed relatively stable over the week, the Hang Seng Index slightly gained 0.14%, while the CSI 300 grew 1.12% over the same period. The “Two Sessions” have formally ended, the National People's Congress (NPC) did not set a target economic growth for the year. Premier Li Keqiang pointed out that the "six guarantees" are the focus of this year's "six stabilities". In addition, he claimed that if the key tasks were met, China could still see positive economic growth in 2020. Data such as Caixin Manufacturing PMI will be released next week.

<Harris Fraser Research Team>

With the virus threat fading out in the country, Chinese markets continued to see gains in April, the CSI 300 Index and the Shanghai Composite Index were up by 6.14% (6.43% in USD) and 3.99% (4.27% in USD) respectively, while the Hang Seng Index also gained 4.41% (4.42% in USD).

In terms of economic fundamentals, China seems to have started the recovery from the covid-19 impact, various PMI figures have mostly recovered to pre-crisis levels, other indicators like industrial production, retail sales and export figures have bottomed out, solidifying China’s position as the first major economy to exit the epidemic cycle. The actual epidemic in China has seemed to come to an end, the meeting dates of the previously delayed National People’s Congress have finally been confirmed, implying that the decision makers of the Chinese government determined that situation is the safe enough for the most important people. Moreover, additional fiscal and monetary stimulus is expected, which could further drive the whole economy forward.

Admittedly, risks still exist, especially with foreign demand staying weak and relationships between China and other countries turning sour as countries seek blame for the global outbreak. With the sabre-rattling between China and US, a potential repeat of the dreaded trade war does worries many. Overall, the economy in China remains in recovery mode and seems en route to pre-crisis levels, but one should not underestimate the potential risks.

Confirmed cases in Japan grew steadily over the month, but the situation still seems under control. Following global markets with improving confidence on global economic recovery, equity indexes rebounded. The Nikkei 225 Index and the TOPIX Index were up by 6.75% (7.60% in US$ terms) and 4.35% (5.18% in US$ terms) in April.

Japan’s Prime Minister Shinzo Abe warned that even though the 2020 Tokyo Olympics could be delayed to a maximum of 1 year, if the coivid-19 pandemic is still ravaging by then, the delayed Olympics could still be cancelled. The key to effective containment of the virus is most likely via vaccination efforts, but health experts chimed in that the vaccine is likely at least a year to 18 months away, casting doubt over the possibility of holding the Olympics even in 2021.

This is further complicated by the weakening economic fundamentals in Japan, industrial production, exports, and PMI figures are all down for the time being, implying a negative outlook for the economy. To make matters worse, the epidemic response in Japan remains lukewarm and indecisive, government directives have never been compulsory, Abe in particular is criticized for his late reaction to the crisis. At the moment, the state of emergency will be extended until the end of the month, which could further delay the economic recovery.

US

Recently, market has shifted focus from the covid-19 epidemic to the rising Sino-US tesions. The US trade adviser remarked that the virus originated from China, President Trump even threatened to completely withdraw from the World Health Organisation. Moreover, the US Senate passed a bill, which may trigger delisting of some Chinese enterprises. Although the escalation caused concerns, the three major US stock indexes still rose 3.3 - 3.8% over the past 5 days ending Thursday. At the moment, global covid-19 cases has exceeded 5 million, and the latest epicentre has shifted to Brazil and India. US economic data still raised concerns, as the latest initial jobless claims figure of 2.44 million implied that job losses remained on the higher end. Against the backdrop of uncertainties in the economy, US Treasury Mnuchin pointed out that the Congress would need to pass more stimulus bills. The Beige Book will be published next week, alongside the consumer confidence index in May, plus the revised Q1 GDP.

 EU

European equities mirrored global stock market gains, the UK, French, and German indexes rose 3.7% to 5.7% over the past 5 days ending Thursday. Under the severe economic setback, European countries announced stimulus plans to counteract the epidemic impacts. The UK has launched the post-Brexit tariff plan, reducing import tariffs for a number of products; Spain on the other hand raised the country’s 2020 net debt target to 130 billion Euros, which is three times higher than the original. In addition, French President Macron and German Chancellor Angela Merkel supported establishing the EU recovery fund of 500 billion Euros, this should relief some of the downward pressures on the economy. Europe will release the initial estimates of the Eurozone CPI in May.

China

European equities mirrored global stock market gains, the UK, French, and German indexes rose 3.7% to 5.7% over the past 5 days ending Thursday. Under the severe economic setback, European countries announced stimulus plans to counteract the epidemic impacts. The UK has launched the post-Brexit tariff plan, reducing import tariffs for a number of products; Spain on the other hand raised the country’s 2020 net debt target to 130 billion Euros, which is three times higher than the original. In addition, French President Macron and German Chancellor Angela Merkel supported establishing the EU recovery fund of 500 billion Euros, this should relief some of the downward pressures on the economy. Europe will release the initial estimates of the Eurozone CPI in May.

<Harris Fraser Research Team>

US

Sino-US tensions continued to rise, US President Trump rejected dialogues with China, even claimed that he is considering cutting off bilateral trade relations between the two, the market raised concerns about the performance of Chinese concept stocks listed in the United States. Against the backdrop of trade war threats, global stock markets fell, the three major US stock indexes fell between 0.4% and 1.0% over the past 5 days ending Thursday. As for the covid-19 epidemic situation, Russia now has the second highest number of confirmed cases in the world, and the number of new cases in Brazil also set a new record, becoming a new epidemic epicentre. Although Fed Chairman Jeremy Powell refuted the rumour, the market continued to bet on negative interest rates in the US. The US core consumer price index fell 0.4% MoM, which is the largest monthly decline in history. In addition, the number of unemployment claims filed has also stayed in the millions for 8 consecutive weeks, the economic outlook remains worrying. The US will release the April FOMC minutes next week.

 EU

 The epidemic in Europe showed signs of easing, many countries have lifted border controls. Nevertheless, European stock markets still underperformed against global equities, UK, French, and German indexes fell 3.2% to 6.1% over the past 5 days ending Thursday. As the epidemic subsided, the EU is considering an economic recovery plan on a massive scale, Italy has also approved a 55 billion Euro economic stimulus plan. Other than the Fed, the market is also betting on the Bank of England lowering interest rates below zero by mid-2021. Europe and the UK will release CPI data next week, and the UK will also announce the unemployment rate.

China

The US has increased pressuring China, President Donald Trump is considering banning the federal pension fund from investing in Chinese stocks. The news hit market sentiment, the Hang Seng Index and the CSI 300 Index fell by 1.79% and 1.28% respectively. On Friday, China released April figures for fixed investment, factory production, and retail sales, which have dropped 10.3%, 4.9%, and 16.2% YoY respectively; while the new loan figure in April was 1.7 trillion RMB, beating market expectations. China will announce 1-year and 5-year LPR interest rates, market expects the rates to remain unchanged.

<Harris Fraser Research Team>

US

Covid-19 continued its spread across the globe, but the outbreak epicentres of Italy and the USA alike are showing signs of easing. The number of freshly confirmed cases in the US has only increased by 2.5% on Thursday, which is the smallest single day percentage increase since April. However, President Trump suggested that social distancing measures might extend until summer. After the recent rally, US stocks corrected over the past 5 days ending Thursday, the three major indexes fell slightly by 0.1 - 0.5%. A focus in the market was the negative oil price. In the past week, May contracts of WTI oil futures fell and briefly reached negative $40 per barrel, resulting in large losses for numerous traders & brokers. In terms of economic indicators, the number of initial unemployment claims reached 4.43 million last week, totaling 26.5 million over five weeks. The US Congress passed the fourth epidemic-related bill of 484 billion U.S. dollars, the total fiscal stimulus is now around 3 trillion U.S. dollars. Next week, the US will announce 2020 Q1 GDP, market expects the QoQ growth to fall by 3.7% annualised; in addition, the US will also announce the ISM manufacturing figures and consumer confidence index. The Fed will hold the interest rate meeting next week.

 EU

European markets followed the global market correction, over the past 5 days ending Thursday, only the UK FTSE recorded a slight increase of 0.69%, while the German and French stock indexes fell around 1%. As for the epidemic situation, Spain recorded the highest number of new infections and death in recent weeks, while the number of daily recoveries in Italy exceeded new infection figures for the first time. The European Central Committee will consider accepting junk debt as collateral, as the European Union considers a 2 trillion Euro economic stimulation package, but the EU leaders’ summit failed to reach an agreement on the details of the economic stimulus. It was reported that German Chancellor Angela Merkel mentioned that the scale of counter-epidemic measures must be very large. Next week, the 2020 Q1 Eurozone GDP will be announced; In addition, the European Central Bank will also hold the interest rate meeting in the week.

China

Compared to global markets, the Chinese and Hong Kong stock markets lagged, the Hang Seng Index was down 2.25% and the CSI 300 Index fell 1.11%. Due to the covid-19 epidemic, China's GDP growth in the first quarter of the year recorded the first ever contraction since 1992, contracting 6.8% YoY and falling 9.8% QoQ. This week, the People's Bank of China lowered Loan Prime Rate (LPR) as expected, one-year and five-year rates were reduced by 20 and 10 basis points to 3.85% and 4.65% respectively. In addition, the Chinese Ministry of Finance announced an additional issue of 1 trillion in special debt quotas, market expects the government to further unveil economic stimulus measures. Next week, China will release manufacturing and non-manufacturing PMI data.

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After consecutive months of losses, US equities regained foothold despite the ongoing epidemic, recording a strong rebound in April, S&P 500, Dow Jones, and NASDAQ were up 12.68%, 11.08%, and 15.45% respectively over the month.

The covid-19 outbreak in the US remains relatively severe, as we continue to see 5 digit new cases daily. That said, the rate of growth has gradually eased over the month, slowing down from the percentage growth in the teens to sub 5%. Recently, more citizens came out to protest against the ‘draconian’ lockdown measures, US president Trump echoed the protestors’ sentiment, calling governors to consider a gradual lift of the said measures.

While lockdown measures might be gradually lifted as the severity of the epidemic eased, it’s still too early to celebrate now, as even in the most optimistic scenario, it would still be highly unlikely for social activities to return to normal before June. Economic indicators also suggest that the recovery is not happening yet, manufacturing and services PMI are setting new lows, consumer confidence is weak, and employment data is still soft. With corporate earnings outlook revised down, the current valuation might be considered relatively expensive, we would not rule out the possibility of a correction in the short term, but the extensive liquidity in the market should still propel the market up in the mid to long term.

By Harris Fraser Research Team