Market Commentary 4th March 2020 from Charlie Hancock

Posted by melaniebond
Market Commentary 4th March 2020
Equity Indices
The FTSE 100 index declined by 11.12% last week during a torrid week for equity markets around the globe. The FTSE 250 index suffered a similar decline of 11.25%.

With the number of coronavirus cases around the globe increasing, investors became concerned that the economic impact of the virus may be worse than initially thought. Consequently, equities were sold off heavily through the week.

Stocks in the travel sector were ditched on expectations of greatly reduced travel in the coming months. Cruise operator Carnival PLC saw their share price decline by 19.10%, with EasyJet PLC seeing a 27.05% fall.

European equity markets were also in the doldrums last week, with the broad FTSE All World Index – Asia Pacific falling by 6.57%. The DAX index declined by 12.44%, posting its worst weekly loss since the 2008 financial crisis.

An outbreak of Coronavirus cases in Italy during the week resulted in concerns regarding the Eurozone’s economy coming to the forefront. With growth already weak and a central bank which has little room for further stimulus, the concern is that some of Europe’s major economies could tip into recession if the virus spreads significantly.

Banco BPM, one of Italy’s largest banks, suffered a 16.81% decline in their share price during the week.

US equity indices also declined heavily last week, with the S&P 500 falling by 11.49%. The Dow Jones Industrial Average index was 12.36% lower across the week. All 11 major sectors in the S&P 500 logged a weekly decline. Concerns around falling demand for oil were evident, with energy being the worst performing sector.

Most of the closely watched FAANG stocks suffered falls of around 10%. Netflix Inc was the exception, declining by just 2.90% across the week. The softer fall indicates that investors see no obvious headwind for the streaming company, with expectations of a slowdown in leisure activity being positive for companies such as Netflix.

Gilead Sciences Inc also held ground across the week, declining by 0.49%. The biotech company announced that they are carrying out further clinical studies to test the effectiveness of its Remdesivir drug in treating the coronavirus.

Asian equity markets fared better than their European and North American counterparts last week. The broad FTSE All World Index – Asia Pacific declined by 6.57%. The Shanghai Composite posted a 5.24% loss and the Nikkei 225 index fell by 9.59%. Expectations of a sizeable stimulus package helped to alleviate investor concerns around the economic impact of the coronavirus in China.

Data for the Chinese economy released last week was poor, with the official manufacturing Purchasing Managers Index (PMI) showing a low of 35.7 in February, versus a level of 50 for January. The non manufacturing PMI declined to 29.6, reflecting a broad slowdown in the Chinese economy. Unofficial surveys conducted by the likes of Citi Bank indicated that activity picked up during the week, with the number of people returning to work increasing steadily.

Bond Yields
With concerns of a significant global economic slowdown at the forefront, demand for safe haven assets was strong, resulting in government bond yields declining significantly. The 10-Year Gilt yield moved from 0.57% to 0.44% across the week.
Government bond yields in Europe also declined. The 10-Year German Bund yield moved further into negative territory, from -0.43% to -0.61%.
The 10-Year Treasury yield declined sharply from 1.46% to 1.13% as investors ditched equities in favour of government debt. The 10-Year yield declined daily to finish the week close to the 1% mark.

The movement in US government bond yields reflected the market’s expectation of two interest rate cuts by the Federal Reserve in the coming months.

GBP / USD – Current 1.2823 Previous 1.2964

GBP / EUR – Current 1.1626 Previous 1.1948

The Pound fell by 1.09% against the US Dollar and 2.70% against the Euro last week. The UK government rejected demands from the EU for close alignment on regulation and laws, prompting fears of a no-deal scenario at the end of 2020. Speculation that the March budget may be delayed also contributed to Sterling falling during the week.

Gold prices declined last week, bucking the trend of investors seeking the precious metal when equities are sold off. The spot price moved 3.51% lower to $1,585.69 per ounce.
Wholesale oil prices suffered heavy declines last week as traders priced in expectations of reduced demand in the coming months. The Brent Crude spot price fell by 13.64% to $50.52 per barrel.