The week ahead sees a fresh estimate of US GDP in the first quarter, for which the decline is expected to be unrevised at a 4.8% annualised rate. Other GDP updates, including for India, Singapore, Taiwan, Germany, France and Italy, are also widely expected to show a similar picture of economies already hit hard by the COVID-19 pandemic in the first quarter.
The Japanese economy suffered a further substantial fall in business activity during May, according to the latest flash PMI results. The downturn reflected not only the extension of emergency measures taken domestically to contain the COVID-19 pandemic but also the collapse in global demand. The curbs on social and business activities continued to weigh heavily on sales across both manufacturing and service sectors.
May saw another substantial fall in business activity across Australia, setting the scene for a deepening downturn in the economy during the second quarter. Even as lockdown measures were relaxed in mid-May, this only contributed to a minor easing of the rate of contraction in business activity as demand continued to weaken. This resulted in job losses persisting into May as firms worried about excess capacity.
European banks haven't always welcomed regulatory change since the Great Financial Crisis. More often than not it raises costs and can have a material impact on balance sheet structure; the reduction in risk weighted assets being a notable example. But regulators have a responsibility to ensure the stability of individual banks and the financial system as a whole. The interests of banks and wider society should be aligned as much as possible.
A number of companies have reported earnings over the past few weeks, providing an early insight into how the COVID-19 outbreak has had a significant impact on revenues and profits in the first quarter of 2020. Many companies refrained from providing full year guidance stating significant uncertainties in assessing the time period of the pandemic and how markets would behave.
The impact of COVID-19 on the funding spread – Recently, amidst the unprecedented volatility and asset price shifts cause by COVID-19, the Funding Valuation Adjustment (FVA) has become a major source of accounting losses for several US banks totaling almost $2bn. FVA, which measures the cost (and benefit) of funding uncollateralized trades, depends largely on two factors: the exposure on the trades and the funding spread. One cause of the sudden rise in FVA may be attributed to the lowering of interest rates by reserve banks around the world.
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