1st June 2020
May ends with optimism and promises of more stimulus
The stock market recovery that started on 23 March – and was widely regarded as little more than a soonto-falter bear market rally – consolidated further over the last week of May. By now it is either the most
pronounced bear market rally in history, or we have indeed already witnessed the turning point of the
equity bear market that accompanies recessionary periods (see chart further down). In this context, it was
notable that the recovery broadened over the past week, with small cap stocks, markets beyond the US
and cyclical stocks all finally enjoying a day in the sun as well.
With the cost of corporate credit remaining stable, despite the sobering readings of economic output in
freefall, there was real optimism in the air that with the gradual and persistent reopening of western
economies, the worst may be over and a strong recovery in sight.
Superpower predicaments in the 21st century
In normal times, a serious escalation of tensions between the US and China would be front-page news
across the world. But as far as we are from normal, the rising conflict between the world’s two preeminent
powers made little more than a footnote on the BBC news page last week. On Thursday, it warranted an
article on the frontpage of the Wall Street Journal, but was still secondary to virus counts and the EU’s
communal investment proposal.
That lack of coverage hardly diminishes the gravity of the situation though. China’s National People’s
Congress has formally approved a plan to impose national security measures on Hong Kong. If and when this is put into force, Hong Kong will – de facto – have lost its status of quasi- independence from mainland
Headwinds for travel and leisure
Of all the industries hit by the pandemic and subsequent global lockdown measures, none have been hit
harder than travel and leisure. Flights and holidays have been put on hold for the foreseeable future, and
while businesses are starting the slow process of opening up, tourism and international travel are seen by
governments as the last stop on the road back to normal.
Airlines, which rely on regular traffic, are hobbling forward with little clue when they will be able to resume
business in any form, let alone at pre-crisis levels. Many have sought to take advantage of employee
furloughs or emergency loan schemes, as well as requesting extraordinary bailouts. The British public
seemed to feel a little schadenfreude (along with a heavy dose of outrage) at the sight of Richard Branson
asking for a bailout for Virgin Atlantic last month. But there is no denying that travel companies are facing
existential risks. EasyJet announced last week that it plans to cut 30% of its 15,000-strong workforce. This
comes after British Airways, Ryanair and Virgin Atlantic all announced similarly large layoffs.