Market Overview May 2020


The UK Economy has taken a huge hit in the past 4 weeks as government restrictions extend into May. Large parts of the economy have ground to a complete halt and many businesses are turning to government for help. UK composite PMI slumped to 12.29 in April, a record low and down from 36 in March. To put this into context, 2008 PMI during the depths of the financial crisis in 2008 hit 38.1.

Increasing numbers of UK companies are suspending or cutting dividend payments as they look to consolidate cash flows and shore up their balance sheets. The good news is that at no time in history has so much aid been afforded to large UK companies. They can borrow directly from the Bank of England, take special loans from commercial banks, furlough staff and have most of the wages covered by the Treasury. Only time will tell if these measures are enough to stave off the worst of the recessionary effects.

Boris Johnson was rushed to hospital after his coronavirus symptoms worsened, and was eventually transferred to intensive care, before being released and recently celebrating the birth of his baby boy, quite a busy month for the prime minister.

The government has confirmed lockdown restrictions will not be lifted soon and indeed, that any relaxation of the rules will be more gradual as they look to contain and manage any potential second wave of the virus, so economic activity will likely remain depressed for some time yet.

Meanwhile, Brexit negotiations are continuing, becoming more tense with each passing week as the UK government insists there will be no extension of the transmission period and that they will veto any such request from the EU. British business’ though, thinks there will be an extension. This disparity will cause huge uncertainty over the coming weeks and months.


Data announced at the end of April showed euro-area GDP shrank 3.8% in the first quarter. Italy saw output fall 4.7%, while France and Spain reported contractions of more than 5%. It adds even more urgency to controversial demands for joint fiscal support from EU governments. So far, the EU have failed to agree a way through the crisis, repeatedly struggling to form a coherent plan and highlighting the difficulties of negotiating between so many countries at a time of crisis.

Italy are beginning to lift lockdown restrictions and other countries are outlining similar plans, with the hope that the worst of the virus has left the region and some level of normality can resume. Fears about a second wave of infections persist in the minds of policymakers and will be crucial to how loose they allow restrictions from here, and at what pace they are lifted.

Economic data from the eurozone continues to disappoint to the downside, with contractions in France and Spain worse than forecast, and overall eurozone GDP shrinking 3.8% in Q1, more than the forecast 3.5%. We saw the ratings agency Fitch downgrade Italy’s bonds to only one level above junk, while others placed the countries bonds on negative outlook. This is particularly significant at a time when eurozone economies look to finance bulging budget deficits and national debt.


Every job created since the 2008 financial crisis has now been erased. Estimates put current US unemployment at over 20%, though much of this is furloughed staff (in the US, furloughed workers go on the unemployment register and claim unemployment benefits, whereas in Europe this is not the case) making the numbers seem higher, but still a huge amount.

President Trump continues to astound observers with more remarks about his medical views, including that injecting disinfectant may be a way to combat COVID-19, prompting one manufacturer to release a statement declaring that under absolutely no circumstances should any disinfectant product be injected or consumed. He later decided he was merely being sarcastic.

Predictably, anti-lockdown freedom protestors took to the streets in America in April, demanding an end to restrictions. The US will be the first country to drop any lockdown guidelines and allow state governors to determine their own paths. Fears about an inevitable second wave will keep state senators weary.

Bernie Sanders dropped out of the Democratic Presidential nominee race and declared his support for Joe Biden in a boost to his rival. Trump is desperately searching for those who he can direct blame to for the crisis, starting with China and asking the CIA to investigate whether the Chinese government covered up the outbreak or hid the scale of the issue. He will be only too aware that presidents who suffer recessions in their first terms rarely succeed in being elected for a second term. Currently, much of the aid that has been announced has made its way to big companies, but very little to smaller businesses who have struggled to get the cash they need.


The BoJ has dropped limits on asset purchases, further reinforcing the ‘whatever it takes’ mantra of central bankers around the world during this crisis. It previously had a limit of 80 trillion yen for Japanese government bond purchases and now states it will buy unlimited amounts as deemed necessary. Experts agree extending monetary policy is unlikely to prove effective, however there is little else the central bank can do, and it reinforces the need to see more action on fiscal policy.

Japan appears more cautious on lifting lockdowns and is expected to maintain a state of emergency into late May/early June. The government are worried about a second wave of the virus at a time when hospitals are already operating at overcapacity.

Data out of China suggests the economy is well on the way to recovery following the coronavirus outbreak, and points to containment of the virus. It is difficult to believe much of this, as almost the entirety of the rest of Asia is showing huge contractions in key economic data, such as PMIs, while China is the outlier with a strong rebound back into expansion territory.

Wuhan, where the virus began – likely from local wet meat markets – is reporting it has no remaining cases of the virus. Whether this can be believed or not remains to be see, however if so it suggests potentially positive news for western countries as they begin to lift restrictions.

Please note: The opinions expressed in this update are those of A&J Wealth Management Limited only, as at the 4th May 2020 and are subject to change. The update is for information purposes only.


Featured Posts
Recent Posts
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
Search By Tags
No tags yet.
Follow Us