Market Update – 27th May 2020.

US equity markets opened up strongly yesterday (26 May 2020) and at one point the Dow Jones traded above 25,000 for the first time since 10 March 2020, while the S&P 500 index crossed the 3,000 level for the first time since 5 March 2020 as US consumer confidence stabilised after two months of sharp declines, while Jamie Dimon, the Chairman and CEO of JPMorgan Chase, stated that the US economy will see a fast economic rebound starting in Q3.

This confirms what we have long argued:  the coronavirus outbreak is a transient issue and that global economic growth and company profits will only be temporarily impaired and as a result, while the economic shock will be sharp and painful it will also be short with an economic recovery towards the end of the year (i.e. a V-shaped economic recovery).

In addition, pharmaceutical company Merck and the biotechnology company Novavax both gave updates on their coronavirus vaccine developments – as we have previously stated there are lots of companies around the world working on a vaccine and given the number of shots being taken at the goal, the chances of a breakthrough is probably not too far away – and of course, a vaccine will speed up the economic recovery.

However, these early gains were almost cut in half during the last hour of trading (8-9pm UK time) after it was reported that Donald Trump is considering sanctions on Chinese officials over Hong Kong’s proposed new security laws, suggesting the two countries are now on a collision course which could negatively impact trade at an important and sensitive time for the global economic recovery.

Subsequently, the S&P 500 index ended the day up 1.23% at 2,991.77, while the Dow Jones closed nearly 530 points higher, or 2.17% at 24,995.

China’s National People’s Congress (NPC) is expected to vote tomorrow (Thursday 28 May 2020) on the new national security laws – which if implemented will erode the ‘one country, two systems’ policy and mark the beginning of the end for Hong Kong’s status as an autonomous territory and important financial centre.

Consequently, overnight both Chinese and Hong Kong equity markets have fallen:  China’s CSI 300 index fell 0.70%, while Hong Kong’s Heng Seng index has just closed (9am UK time) down 0.38%.

As for this morning, the FTSE-100 is looking past these escalating US/China tensions and is again focusing on the economic data that suggests that the worst of the economic damage caused by the coronavirus outbreak and associated lockdowns has passed – and as we write, the FTSE-100 is up around 60 points or 1%.

Investment Management Team