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The ECB expanded its pandemic emergency purchase program by €600 billion to €1.35 trillion.

In Europe, the ECB expanded its pandemic emergency purchase program by €600 billion to €1.35 trillion, extending it until at least June 2021, and promised to reinvest proceeds from maturing bonds until the end of 2022. The ECB maintained its key interest rates unchanged and said it continues to stand ready to adjust all its instruments, to make certain that inflation moves toward the ECB’s goal “in a sustained manner.” Eurozone inflation slowed to a four-year low of 0.1% in May, from 0.3% in April, as energy prices plummeted. For the week ahead, industrial output and trade figures for April are due for major European economies and are expected to uncover the devastating impact of the virus shutdowns on the manufacturing sector. Industrial production in Germany, UK, and France is expected to show a contraction of 16%, 19.3%, and 20% respectively. 

In US, upside surprises in labor market data appeared to drive much of the week’s positive sentiment. Nonfarm payrolls rose by 2.5 million in May, defying expectations of 7.5 million jobs lost. The surprise increase came on the heels of the record 20.5 million jobs lost in April. The unemployment rate declined to 13.3%, beating forecasts of a near-record 19% rate. April’s 14.7% reading was the highest since the Great Depression of the 1930s. The May report suggested that the US economy might be past the peak of the coronavirus pandemic’s devastation. Leisure and hospitality workers made up almost half the increase last month, with 1.2 million going back to work after a reported loss of 7.5 million in April. 

Jobless claims last week totalled 1.877 million, with total filings during the coronavirus pandemic reaching 40.5 million. Although the numbers remain elevated, it is the lowest total since shortly after the coronavirus was declared a pandemic. Other economic reports released were also less negative than expected. The ISM’s gauge of service sector activity showed a smaller-than-expected contraction in May, and April construction spending also fell less than anticipated. The consumer savings rate reached a record-high 33% in April, raising hopes for a surge in spending as the economy reopens. 

For the week ahead, the Fed completes its two-day meeting on Wednesday. The Fed will continue to signal that liquidity will be available in sufficient quantities and at low interest rates. The isolated market speculation about a rate cut below zero will likely be rebuffed and that the FOMC’s outlook will again not include the possibility of a rate cut. However, the FOMC may become a little more explicit about how long interest rates should remain at current levels and announce a target period to provide the markets more certainty. 

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