After equity markets started the week with strong gains, profit taking and a more realistic economic outlook dominated investor sentiment yesterday. The focus was once again on US Federal Reserve Chairman Jerome Powell, who together with US Treasury Secretary Steven Mnuchin answered questions from the Senate Banking Committee. The questioning, which normally takes place in the Capitol in Washington, was this time conducted via video conference. According to the Chairman, the Fed is ready to use all its instruments to fight the corona crisis. At the same time, Powell emphasized that the Fed's monetary policy was only one part of the broad government support, which meant that the Fed Chairman was virtually calling once again for stronger fiscal policy.
Secretary of the Treasury Steven Mnuchin appeared before the Senate committee confident that the economic situation would improve thanks to the easing of the lockdown in the third and fourth quarters. In the current second quarter, however, continuing high unemployment figures must be expected. According to Larry Kudlow, Chief Economic Advisor to US President Donald Trump, the US government is considering to drastically reduce the wage tax to dampen the negative economic effects of the pandemic. A reduction of the wage tax by -7.6% is under discussion, Kudlow said
In the meantime, the US real estate market is also feeling the full force of the corona crisis. The number of new construction starts in April plummeted by around -30% to the lowest level since the beginning of 2015. At the same time, the number of building permits fell by more than -20%.
European bond markets eased after Germany and France proposed to launch a EUR 500bn fund to combat the effects of the corona pandemic. The money will be used to support member states that are particularly hard hit by the crisis. The announcement should particularly help highly indebted euro zone countries such as Italy and Greece. Yields on their government bonds have risen in recent weeks, as the threat of an economic slump has once again raised doubts about the stability of the euro-area. The financial backing of the euro heavyweights Germany and France has now halted the upward trend in bond yields of peripheral countries for the time being. The planned fund is intended to supplement the EU aid package already agreed, which amounts to EUR 540bn.
In Germany, investors and analysts are once again looking more confidently to the future. This is illustrated by the ZEW indicator, which measures the economic expectations of financial experts. Sentiment improved in May for the second time in a row, after the index had dropped significantly in March. Thus, the respondents expect the economy to pick up already during summer. However, they anticipate a protracted recovery process and economic output is not expected to return to pre-crisis levels until 2022, the ZEW commented.
In Great Britain the number of unemployed has risen dramatically. In April, 2.1 million people were registered as unemployed, almost 70% more than in the previous month. This is the largest increase ever recorded, and unemployment claims have surged to their highest level in 1996. The figures probably underestimate the extent of the problem, as the government is currently supporting workers who have been sent on forced leave by their employers.
|10:00||EZ||Current account balance||EUR 40.2 bn|
|11:00||EZ||Consumer price index (y/y)||0.7%|
|10:30||GBR||Consumer price index (y/y)||1.5%|
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