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Lockdown restrictions began to ease in worst hit countries

European equities began May 2020 in negative territory as an underwhelming ECB policy report, delivered at the end of the prior month, continued to disappoint markets. President Donald Trump also did little to help as he appeared to rekindle the bad feelings between the US and China. Following the previous month’s rally any hint of bad news was always likely to be taken badly and particularly when that rally has been inspired by the actions of central banks rather than a solid underpinning from fundamentals.

Some of the worst hit countries such as Spain and Italy, began to ease their lockdown restrictions. As is always the case, stock markets were one step ahead of such moves and began to discount a strong rebound in earnings as economies were given the first hints that they may begin to return to some semblance of normality. Quite why Donald Trump chose this moment to pick a fight with China is a mystery although the more Machiavellian among us suspected a subsequent resolution of such a conflict could boost his electoral chances in this year’s presidential election. Later in the month China further exacerbated the situation by threatening to impose a national security law on Hong Kong, a move which pulled the UK firmly into the fray. Despite the market’s bullishness the underlying economic data remained unremittingly bleak with, for example, April’s Eurozone new car registrations down 76% and March construction output and industrial production both down double digit.