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Tech companies continue to push stock markets back to new highs but it makes them an easy target for governments. This year alone, Alphabet (Google), Amazon, Apple, Facebook, and Microsoft, have already announced 19 acquisitions. On the other hand, it can be also damaging for small companies, as tech giants risk stopping new companies from gaining ground. Exactly for that reason, Microsoft was fined for preloading its Internet Explorer onto Windows computers. And more recently, Amazon.com Inc. was alleged of violating federal antitrust laws by monopolizing the online retail marketplace through agreements with third-party sellers.
By growing so fast, tech companies began attracting more government attention, something that never ends well. In 2018, Google, for example, was fined a record $5 billion by the EU. Some countries are considering implementing a digital tax on tech companies’ income, something that may trigger the U.S. to impose adequate sanctions.
In the meantime, despite President Trump’s press conference on China, S&P 500 index and Nasdaq Composite Index ended the week higher, most probably due to the gradual reopening of the domestic and global economy. Moreover, the House passed a bipartisan bill that would loosen requirements on hundreds of billions of dollars in small-business loans, to avoid mass layoffs at small businesses during the corona crisis. The bill the House approved would give borrowers under the $670 billion Paycheck Protection Program to reduce the level of PPP funds that must be used for payroll to 60% and extended the period for borrowers to use the funds to 24 weeks from eight. In the past, the program supported payroll costs, and so companies, realizing that they had other costs, did not borrow money and did not save jobs, but closed down.
In the case of Europe, a €750 billion recovery fund has been proposed by the EU’s executive Commission to help the EU tackle an “unprecedented crisis”. Even though, it requires approval by all EU members and includes €500 billion of grants to member countries.
The US versus China conflict is back on track. On May 28, after China’s National People’s Congress adopted new security legislation on Hong Kong, U.S. President Donald Trump vowed retaliation. Even though, no additional tariffs or withdrawal from the Phase One trade deal have been announced. Still, he said the U.S. will eliminate special treatment for Hong Kong, will study practices of Chinese companies on U.S. exchanges, and will terminate its relationship with the World Health Organization.
Talking about economic data, it showed personal income increased 10.5% in April thanks to the stimulus payments authorized by Congress, but personal spending dropped 13.6%. Most importantly, the personal savings rate surged to a record of 33.0%. The core PCE Price Index, which excludes food and energy, dropped 0.4%, whilst the University of Michigan’s Index of Consumer Sentiment decreased to 72.3 with the final reading for May versus the preliminary reading of 73.7. The final reading for April was 71.8.
The advance goods trade deficit was $69.7 bln in April after a $64.98 deficit in March. Advance retail inventories declined 1.1% in April after decreasing 1.0% in March. Advance wholesale inventories increased by 0.4% in April after decreasing 0.8% in March.
Real gross domestic product decreased at an annual rate of 5.0 percent in the first quarter of 2020, according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased by 2.1 percent.
It reflected negative contributions from PCE, private inventory investment, nonresidential fixed investment, and exports that were partly offset by positive contributions from residential fixed investment, federal government spending, and state and local government spending.
Continuing unemployment claims fell for the first time since February, and the number of people applying for the first time decreased for the eighth week in a row. Nevertheless, According to Steven J. Davis of the University Of Chicago Booth School Of Business, it is estimated that 42% of recent pandemic-induced layoffs will result in permanent job loss.
Finally yet importantly, Fed Chair Powell reiterated that the central bank will continue doing everything it can to support the financial system and aid an economic recovery. He also added that the Fed was not close to hitting the limits of its balance sheet.
China
The People’s Bank of China extended its market liquidity injections for the fourth straight day on Friday, making the biggest weekly cash injection since mid-January. The Chinese central bank is expected to inject 300 billion yuan ($41.99 billion) via seven-day reverse repurchase agreements. This will account for a weekly net cash injection through open market operations to 670 billion yuan.
Macroeconomic Data & Events
The FED of New York announced on Friday that it will purchase approximately $4.5 billion in Treasury securities every day next week. Thus, the total amount of weekly purchases will be lowered to $22.5 billion from $25 billion this week.
What is more important is Lagarde’s communication that will take place on Thursday. It is expected that the focus of the meeting will likely be the expansion of the PEPP.
June 1: A major part of European markets will be closed due to Whit Monday. Still, the final reading of May Manufacturing PMI data for China, Germany, the Eurozone, Canada, and the United States will be released.
June 2: Will be the day of PMI figures for Norway and Denmark, RBA interest rate decision, UK consumer credit, mortgage lending and approvals (Apr) and CBA Australia services PMI (Final, May).
June 3: Wednesday will be the day of the final version of Services PMI data for China, Germany, the Eurozone, and the United States. In addition, Unemployment Rate figures for Germany and the euro area will be published.
June 4: On Thursday, the ECB will announce its interest rate decision and publish the monetary policy statement.
June 5: The week ends with the Nonfarm Payroll Report from the U.S.
Great job! Thanks, Igor. Very interesting and, most improtantly informative.