11 to 17 May: Markets to focus on policy agendas in the US and China

Federal Reserve Chairman Jerome Powell said in an interview that the US economy could take more than a year to recover from the coronavirus-induced shock. Mr Powell added that it was ‘reasonable’ to think that the unemployment rate would keep rising through June and begin to decrease when businesses reopen. The Fed Chairman cautioned that it would be hard for the public to be ‘fully confident’ until there is a vaccine for the new coronavirus. Although Congress has appropriated nearly USD 2.9tn so far to support households, businesses, health-care providers and state and local governments (about 14% of GDP), Mr. Powell called for additional spending to prevent long-term damage. The Fed Chair ruled out the introduction of negative interest rates in the US.

As the economic diary is relatively light this week (developed market PMIs and a couple of EM central bank meetings are scheduled), markets will most likely shift their focus towards policymakers in the US and China. Whilst the Democrats in the US are trying to wrestle Republicans to pass another round of large-scale economic relief package (of about USD 3tn), the Chinese government will meet at the National People’s Congress starting on Friday to discuss the policy agenda. Furthermore, President Trump’s occasional and unpredictable tweets on foreign policies and trade relations will draw investors’ attention.

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