NBK Money Market Report

Risk appetite returns as markets reopen

KUWAIT: Risk appetite slowly returned to markets last week as economies around the world began to ease coronavirus restrictions and return to work. In the US, most states have begun a phased reopening, and consumers are cautiously venturing out of quarantine. In the UK, Prime Minister Boris Johnson said Britain will reopen thousands of shops, department stores and shopping centers next month. Some stores could be opened as early as June 1 if they are able to meet the government’s COVID-19 secure guidelines.

Spain, which has some of Europe’s strictest lockdowns, urged foreign tourists to return from July as it

eases restrictions. Spain’s Foreign Minister tweeted “The worst is behind us” and “In July we will gradually open Spain to international tourists, lift the quarantine, and ensure the highest standards of health safety.”

The story is the same with multiple other countries setting the guidelines for reopening their economies. The resulting optimism lead to a broad-based decline in the safe-haven US dollar and a push towards other majors such as the euro and sterling pound. On the other hand, Stock markets across the globe were higher, commodity markets rallied, and US Treasury prices fell. The S&P 500 index rose above the 3,000 level for the first time since March 5, as more US companies joined the race to test coronavirus vaccine candidates on humans and enroll its first participants. The rally however, was capped off the end of the week after US-China tensions came back into focus. Worries about the effect of a US response to China’s proposed security law for Hong Kong kept risk appetite in check. President Donald Trump said the US was working on a strong response to China’s planned national security legislation for Hong Kong and it would be announced before the end of the week.

China responded with a warning that it would retaliate against any new imposed measures. The Chinese yuan eased to a near nine-month low against the dollar over fears of a deterioration in US-China relations.

Mixed economic data

US consumer confidence nudged up in May, suggesting consumers may be feeling that the worst of the coronavirus-driven economic slump was likely in the past as the country starts to reopen. While below expectations, the Conference Board said its consumer confidence index edged up to a reading of 86.6 this month from a downwardly revised 85.7 in April.

The Core PCE price index to fell 0.4 percent in April while Personal Spending plunged -13.6 percent to a sixdecade low. The drop in the US Federal Reserve’s preferred inflation gauge took the annual core PCE rate to 1.0 percent from 1.7 percent. Finally, real gross domestic product decreased at an annual rate of 5.0 percent in the first quarter of 2020, according to the “second” estimate