The stock markets are falling hard on doubts about plans for deconfinement
May has begun with sharp falls in the European stock markets on the heels of the losses experienced by Wall Street last Friday, when the old continent's trading floors were closed for the Labour Day celebrations on May 1st. Investors are fearful of uncertainties surrounding the de-confinement plans in Western economies. Southeast Asian stock markets also suffered losses on Monday due to fears of a new trade war between the United States and China. The Hong Kong Stock Exchange is the most affected in the area, falling to 4.18%. Jakarta's trading floor is down 2.35% and all the markets in the region have ended up with losses, except for Bangkok's, which was closed for a local holiday.
Meanwhile, the Ibex dawned with falls of over 3%, the German Dax fell by 2.7% and the French Cac 40 by 3.3%. In Milan, the first European region to experience confinement, the reopening of the economy and the return of productive activity did not translate to the screens and its trading floor fell by 3% on Monday. The only European stock exchange to "save the furniture" was London, which benefited from hopes raised by the Bank of England meeting next Thursday, when new stimuli for the British economy could be announced.
Investors have lost the optimism shown in recent weeks due to the reopening of the economies and the development of treatment against COVID-19 with the publication of the PMI indices at the end of April, a survey on prices, production and employment carried out on the main companies in the country, and which have reflected a lower activity on this occasion due to the confinement measures and the paralysis of the economy.
In the case of Spain, the macro table revised by the government and sent to Brussels last week forecasts a strong recession of 9.2% and an increase in unemployment to 19%. The manufacturing sector has suffered a strong blow according to the PMI index published on Thursday and has recorded its worst reading since December 2008. The business outlook is not good either. Amazon has announced in the second quarter of 2020 losses close to 8% by the coronavirus.
It should be noted, at this point, that tensions between the U.S. and China after Donald Trump, U.S. president, claiming compensation for the pandemic to the Asian giant has also made investors nervous. The U.S. president is weighing everything from tariffs to debt defaults to make China pay for the expansion of COVID-19.
The uncertainty regarding the international economy remains very high, warns a report prepared for clients of Renta4Banco. "The slowdown in the rate of contagion must continue to be reduced and a balance must be maintained between economic recovery and social distancing to prevent a resurgence of infections," the bank's analysts predict.
Oil prices also fell on Monday. Brent's barrel fell 1.4% to $26 per unit and West Texas' 6.4%, with each Texas barrel changing to $18.52 on Monday. Investors have realised that production cuts are not enough in view of the drop in demand due to the COVID-19 pandemic. Despite the cuts decreed by OPEC+, more crude oil continues to be produced than is being consumed and storage problems have yet to be resolved. "The market has realised that the agreed production cuts are nowhere near offsetting the sharp drop in demand in the second quarter," explains Paola Rodriguez-Masiu, senior oil market analyst at Rystad Energy consultancy in a report for clients.
The expert notes that, with the current production surplus, oil stores are expected to be filled before demand recovers, which will bring prices down to their lowest level in May. "Demand projections indicate that oil will take time to recover and last week's investor optimism about the return of activity has dissipated. The possibility of a new episode of trade war between the United States and China has also contributed to Monday's price falls," said Rodríguez-Masiu.