Markets Look Past Protests To Take Comfort From ECB Stimulus:

Last week markets showed that political unrest is no match for central bank stimulus. In fact, news headlines blaring out ‘Markets look past protests’ were some light relief in otherwise dark times. Widespread protests about policing and racism in the US have had little impact on financial markets. Meanwhile Chinese-fuelled protests in Hong Kong have not prevented the Hang Seng posting its best week since 2015.

Equity markets were boosted by a larger than expected increase in the European Central Bank’s bond purchase programme. It added €600bn to take the total to €1.3trn. Eurozone government bonds also rallied with the yield on Italian and Greek government debt back to early year levels. Markets were also supported by improving economic data. Monthly Purchasing Managers’ Index figures were released last week. Overall PMI data show a sharp improvement across economic sectors and regions on the levels seen in April. However, there’s no escaping that May’s figures would be terrible had they not been coming from such a low base.

UK: FTSE 100 Reshuffle Reflects COVID-19 Winners and Losers 

The FTSE 100 is up by 27 per cent since 23rd March. But, as always, the index masks the contrasting fortunes of its constituents. The quarterly rebalance, which took place this week, is a neat snapshot of companies doing well in lockdown. It also highlights those which have seen the biggest setbacks. EasyJet and cruise line operator Carnival are leaving the UK blue chip index. Aerospace engineer Meggitt also drops to the FTSE 250 as does Centrica. The near total shutdown of leisure travel has seen Easyjet and Carnival’s revenue disappear, while Meggitt’s main lines of business include maintenance and support of airlines and the energy sector.

In their place are GVC, Avast, Homeserve and Kingfisher. Gambling stock GVC, whose brands include Ladbrokes, Coral, Sportingbet and bwin, has benefitted from an increase in non-sports betting as idle thumbs seek ways to pass the time in lockdown. Avast is another stock for the times. The online security provider has seen increased demand for its services due to the increase in people working from home.

UK: No-Deal Brexit Concerns Weigh on Sterling: 

Away from how markets look past protests and onto other news! If being stuck at home for three months is enough to blur the concept of time, the return of no-deal Brexit worries is enough to make you feel like you are stuck in a timewarp. The latest Brexit negotiations ended this week, with little or no progress, and markets are once more concerned that the UK could be headed for the exit without a trade deal in place.

This week has seen a sharp drop in sterling against the euro as markets look at the consequences of a no deal Brexit on the UK. The UK left the EU in January and the transition period means there is no change in the relationship until 31st December. There is an option to extend the transition period for two years but this has to be agreed by 1st July.  There are no further trade talks scheduled before the deadline, although Boris Johnson does have a conference scheduled with EC president Ursula von der Leyen and EU Council president Charles Michel on 19th June.


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