The week started on a positive note as important monthly surveys tracking manufacturing and services business sentiment increased sharply from the previous month. These are ‘flash’ estimates prior to the full data release in the first week of every month and pointed to a tentative expansion in some European countries in May. Most results pointed to continued contraction, but on a significantly reduced basis from April.
This positive sentiment unwound throughout the week as first, trade tensions arose between the US and Europe, to be followed by worsening Coronavirus infection data from certain US States.
Case numbers have begun to rise sharply but deaths are still resolutely falling. Of course, they could eventually start to rise with a lag, but possibly explanations for the divide include a fall in virus virility, better treatment and those infected being less susceptible to severe symptoms or indeed death:
Affected States are taking action. Whereas New York has allowed restaurants to resume sit-down service with outdoor-only seating, Texas ordered taverns to close over the weekend. Texas, along with Arizona, California and Florida currently account for around as many new cases as the rest of the country put together.
This led to a largely negative week for equity markets, with only Asian and Emerging Market equities eking out small gains of 0.86% and 0.22% respectively, again proving to be safe havens in a worsening COVID news flow environment. Japanese equities also performed well in relative terms, falling by 0.22%, with Europe further behind on -1.36%.
The US suffered most over the week given the circumstances with the S&P 500 falling by 2.49%.
Safe havens proved attractive, with Gilts rising by 1.2% and the prices of gold and silver (in Pounds) also rising strongly by 1.94% and 1.19% respectively.
The developments in the US will be of particular importance to watch, especially with regards the divergence between new cases and fatalities. Important economic data is also released this week on business sentiment and US jobs that will no doubt prove important in determining the direction of travel in the short term.