Week ending 17th April 2020.

Most of the major global equity markets ended the week in positive territory.

This may seem bemusing given the week’s grim economic data:  US job losses have now totalled 22m in the past 4 weeks; news that the top five US banks have set aside $25bn for bad debts; China’s first quarterly economic contraction since it began reporting the data in 1992 (Q1 GDP shrank 6.8% compared to the same quarter last year); while the IMF forecast that the global economy would decline 3% this year.

However, all this data simply confirmed what we all already knew – i.e. the global economy has hit a brick wall.

Consequently, equity markets instead took comfort from Donald Trump’s guidelines for a phased/state-by-state economic reopening.  Additionally, a number of European countries including Austria, Denmark, Italy, Spain and Germany, started taking baby-steps towards reopening their economies.

Although the US and the majority of Europe currently remains closed, as the end of the coronavirus lockdowns are clearly in sight, it is best to focus on the likely duration of the economic decline rather than the depth, as once the lockdowns are lifted, the global economy will quickly start to recover.

Additionally, given the expectations for miserable economic data and company earnings are already priced in, any green shoots are enough to spark optimism and therefore higher equity markets – and a key consumer stock, L’Oréal, this week said that once the lockdowns in China were lifted their sales quickly bounced back (please see here), which confirms our belief that the global economy will see a V-shaped economic hit and recovery.

Although we aren’t claiming that everything will be back to normal in the coming weeks, these actions mean that we can now see light at the end of the tunnel.  In the meantime, equity market volatility is likely to remain elevated, especially as more US companies report results this week (about half of the S&P 500 constituents are expected to release statements this month, so it is feasible we will see big swings in individual share prices as well as indices).

Data wise, this coming week in the UK we have employment data, CPI inflation and retail sales, while in the US the main attention will be on the weekly jobless claims and April PMI data.

Investment Management Team

Monday 20th April 2020

The FTSE-100 opened up higher first thing this morning after some encouraging signs over the weekend that the coronavirus spread was slowing (given the US hot spot of New York reported another drop in deaths and a decline in the number of hospitalisations, while the UK reported the fewest deaths in two weeks), coupled with confirmation that Germany will start reopening its economy today and speculation that there may be a breakthrough in the next wave of US economic stimulus.

Additionally, there were reports that South Korean shops (with long queues outside the Apple store), cafes and parks were busy after lockdown restrictions were lifted.  This gives us confidence that the global economy will quickly get back on its feet as restrictions are eased, hence our view that the global economy will see a sharp, albeit painful downturn, with a quick economic recovery on the other side – i.e. a V-shaped recovery.

Unfortunately, the FTSE-100 has since turned lower thanks to the oil heavyweights BP and Royal Dutch Shell (which account for nearly 12% of the index), given a fall in the oil price due to the poor demand, outlook and storage space concerns.  As we write the FTSE-100 is currently down 50 points, or 0.86% at 5,737, while US West Texas Intermediate (WTI) is currently trading just below $13, its lowest level since March 1999 and Brent crude is below $27 per barrel.

Investment Management Team

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