Week ending 10th April 2020.

Given the level of uncertainty surrounding the coronavirus, equity markets have recently tended to sell-off towards the end of the week.

However, despite being a shortened week due to the Easter holidays, global equity markets bucked that trend to end the week with a bang.

Although US weekly jobless claims rose by 6.61m and the prior week was revised up by 220,000 to 6.87m, taking the total number of jobless claims in the past three weeks to just shy of 17m (before the coronavirus lockdowns, claims were around 210,000 per week), it was the Fed that stole the show after it announced plans to provide up to $2.3tr in loans to support almost every area of the US economy.

There are too many details to fully explain here, but in summary, the central bank will target junk bonds, commercial loans, mortgages, and municipal debt as well as loans to large and small businesses to help mitigate the fallout from the coronavirus.

Additionally, the Fed Chair, Jay Powell, said on Thursday 9 April 2020 that he expects a very weak second quarter followed by a quick rebound in the second half of the year – which matches what we have been saying (please see here, here and here).

Equity markets were also helped by signs that the number of new cases of coronavirus may have peaked – and as a result, the estimates for the likely total number of coronavirus deaths in the US was lowered to about 60,000 from as many as 240,000 just over a week ago.

As a result, US equities recorded their biggest weekly gain since 1974, with the S&P climbing 12.10% over the week and the Dow Jones up 12.67%.

Elsewhere, the price of a barrel of Brent oil ended the week around 12% lower after a deal between OPEC and Russia to reduce oil production by 9.7m barrels a day was seen as insufficient to offset the lower demand as a result of the coronavirus lockdowns (as we have previously said, demand has probably dropped by around 25-30m barrels a day).

Looking ahead to this coming week, the quarterly US corporate earnings season gets underway, but thanks to the coronavirus it is likely to be very unpredictable.  Kicking off the season, we have the banks, including Goldman Sachs, JPMorgan, Citigroup, Bank of America and Wells Fargo.

We also have US retail sales, the Fed Beige Book and the weekly jobless claims.

Elsewhere, we have Chinese Q1 GDP, retail sales, import/export data and industrial production.

Investment Management Team

Tuesday 14th April 2020

Although it is the start of a new week in the UK and Europe after the long Easter weekend, US markets were open yesterday – and after last week’s biggest gain since 1974, Wall Street gave back some of those gains, with the Dow Jones losing 1.39% and the S&P 500 down 1.01%.

Global equity markets are clearly on edge ahead of the quarterly reporting season which kicks off later today with both JPMorgan and Wells Fargo – and they are likely to reflect the harsh realities of the coronavirus outbreak, with an increase in provisions for bad debts given that bankruptcies and unemployment have jumped dramatically due to the lockdowns.  Additionally, until we start to see the current lockdowns lifted, companies will only be able to highlight the uncertainty, rather than the certainty, in the outlook for this year’s sales and profits.

Also later today, we get the IMF’s World Economic Outlook – which will undoubtedly prove to be wrong (as they often are in the best of times), given that no one knows how long the current lockdowns will continue.

However, as we have previously stated, government and central bank stimulus measures will help to mitigate the economic damage, but until we finally get to the other side of this horrible coronavirus outbreak, equity market volatility will remain elevated as equity markets hate uncertainty.

Helping sentiment this morning is some more better-than-expected economic data from China.  After China’s PMI (Purchasing Managers’ Index) data came in much stronger than expected last month (please see here), today’s import and export data highlights both how quickly China (the world’s second largest economy) is restarting after its own lockdown, coupled with the strength of Asia, given the lockdowns in the UK, US and Europe.

Chinese exports fell just 6.6% in March (compared with expectations of a fall of nearly 14%), while imports declined just 0.9% against an estimated 9.8% drop.

Investment Management Team

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