Market Commentary 6th April 2020 from Charlie Hancock

Energy stocks saw strong performance, with a rising oil price helping to boost sentiment towards the sector. Royal Dutch Shell PLC saw their share price rise by 15.26% across the week, with BP PLC rising by 10.41%. Conversely, the banking sector struggled after the Prudential Regulation Authority asked the UK’s biggest lenders to suspend dividends until the end of 2020 and cancel executive bonuses. Lloyds Banking Group PLC shares declined by 19.42%, with rival Barclays PLC seeing a 17.59% fall.

On Friday, Purchasing Managers Index (PMI) data for the UK services sector showed a steep decline during March, with a reading of 34.5 compared with 53.2 for February. A level below 50 indicates contracting levels of activity.

European indices had a strong start to the week, but pulled back from Wednesday onwards. Sentiment turned negative after the release of PMI survey data, which showed the worst ever reading for the Eurozone services sector. The reading for Eurozone manufacturing was at its lowest level since 2012.

In a similar move to the Prudential Regulation Authority, the European Central Bank (ECB) asked banks across the Eurozone to suspend dividends and share buybacks for 6 months. With the European insurance regulator also asking insurers to suspend dividends and postpone bonuses, both the banking and insurance sectors struggled last week.

US equities suffered sharp declines on Wednesday after estimates for coronavirus deaths in the US hit headlines. With experts predicting 100,000 to 240,000 deaths, it suggests that the US is likely to see a steep rise in cases over the coming weeks.

US indices failed to recover during the latter half of the week, with the release of data for the US labour market adding to the negative sentiment. Thursday’s initial unemployment figures showed 6.6 million unemployment claims were filed in the week ending 28^th March, bringing the total for the previous fortnight to nearly 10 million.

The People’s Bank of China lowered the reserve requirements for Chinese banks again to boost lending activity further. PMI survey data for China showed a vastly improved situation in March, pointing to a ‘V’ shaped recovery for the Chinese economy should these conditions hold. PMI survey data for services and manufacturing suggested that both sectors returned to expansionary territory during March.

Gilt yields were relatively stable throughout the week, suggesting that recent liquidity pressures, which caused yields to spike, have eased.

The spread between German government bond yields vs comparable Italian and Spanish government debt widened last week. The moves suggest that investors are concerned periphery nations will see their public finances more severely impacted than Germany’s over the coming months.

Investors appeared to be spooked by the gloomy unemployment data and headlines suggesting the US is likely to be the worst affected nation in the coronavirus crisis.

GBP / EUR – Current 1.1362 Previous 1.1182

The Pound fell by 1.53% against the US Dollar last week, but strengthened against the Eurozone currency by 1.61%. The Euro declined against most major currencies last week.

Despite economic data for most regions being dismal last week, support for the gold price was limited, with investors choosing not to seek increased exposure to the precious metal.