Market Commentary 13th April 2020 from Charlie Hancock

Posted by melaniebond
Market Commentary 13th April 2020
Equity Indices
During a strong week for global equity markets, the FTSE 100 index rose by 7.89%. The FTSE 250 index rallied throughout the week to post a gain of 16.37%.

Signs that the coronavirus outbreak is slowing in mainland Europe lifted investor sentiment around the globe. Investors did not appear to be discouraged by data showing that UK consumer confidence rapidly declined during the final 2 weeks of March, a sign that much of the bad news may already be priced in. The consumer confidence index compiled by market researcher GfK declined to its lowest point since February 2009.

Mid-cap stocks that were sold off heavily during March posted strong performance, which was reflected in the FTSE 250’s rise. Cineworld Group PLC, a business significantly impacted by the coronavirus outbreak, saw their share price rise by 111.79% across the week after announcing they would halt an upcoming dividend payment and its planned acquisition of Canada based Cineplex.

The broad FTSE All World Index – Europe ex UK rose by 8.08%. Germany’s DAX index climbed by 10.91%.

As the rate of new infections and fatalities began to slow, politicians started to discuss plans to ease lockdowns in Europe. Spain’s prime minister, Pedro Sánchez, stated that the situation is starting to come under control and Italy’s Prime Minister, Giuseppe Conte, announced that they will look to ease some of the current restrictions this month.

Reports that EU finance ministers were nearing agreement on a €500 billion rescue package for the hardest hit countries also contributed towards the optimistic mood.

US equities had a strong week, with the S&P 500 index rising by 12.10%. The Dow Jones Industrial Average index climbed 12.67%. Despite another 6.6 million US unemployment claims being reported for the previous week, investors were in a bullish mood. News reports suggested that the US government are considering further stimulus measures.

The Federal Reserve’s latest announcement of a lending programme for medium size businesses as well as states, counties and cities appeared to add to the optimism amongst investors. The Fed’s chairman, Jerome Powell, stated that the economy is strong enough to be robust once the pandemic is past, adding that high unemployment can be temporary.

The broad FTSE All World – Asia Pacific index rose by 6.80%. China’s Shanghai Composite Index posted a modest gain of 1.18%. The lockdown of the Wuhan region officially ended last week, with the Chinese economy showing further signs of recovery.

Japan’s Nikkei 225 index gained 9.42%, with Japanese equities rallying despite prime minister Shinzo Abe declaring a state of emergency in Tokyo and other major cities. As with other regions, investors appeared to be focussed on the sizable fiscal stimulus measures announced by Abe, which are reported to be in the region of $1 trillion, equivalent to approximately 20% of Japanese GDP.

Bond Yields
The 10-Year Gilt Yield remained unchanged across the week at 0.31%. Despite a bullish environment, the stable yield suggests that investors were not ditching UK government debt in favour of equities.

On Thursday, the Treasury announced that they intend to use their ‘ways and means’ facility at the Bank of England. The overdraft arrangement, which has not been used since the financial crisis of 2007-08, will provide the Treasury with cash in times of market stress which would impact the issuance of new Gilts.

This announcement may provide downward pressure to Gilt yields in the near future, however, governments are keen to avoid borrowing directly from their central banks and so the Treasury confirmed that any overdraft would be repaid by the end of 2020.

Government bond yields across Europe rose last week, reflecting a ‘risk-on’ attitude amongst investors.

The 10-Year German Bund yield rose from -0.44% to -0.34%, with spreads against debt from poorer nations such as Italy and Greece tightening. Whilst concerns around public finances in periphery countries are likely to persist, the financial assistance measures announced by the European Union last week may have calmed nerves in the short term.

US Treasury yields rose last week as investors sold off US government debt amidst a rally in US equities. The 10-Year Treasury yield climbed from 0.62% to 0.73%.

A weakening US dollar likely provided some downward pressure to Treasury yields, which may have otherwise spiked higher.

GBP / USD – Current 1.2455 Previous 1.2269

GBP / EUR – Current 1.1402 Previous 1.1362

The Pound rose by 1.52% against the US Dollar, with the greenback depreciating against most major currencies last week. Sterling gained 0.35% against the Euro.

The gold spot price rose by 4.67% last week to reach $1,697 per ounce. With some of the recent liquidity pressures easing, the Gold market appears to be re-pricing and consequently the spot price rose even as investors sought riskier assets over ‘safe haven’ holdings such as Gold and government debt.
The Brent crude spot price gained 5.1% last week, with oil markets remaining volatile. The price rose to $31.48 per barrel as news reports suggested that Saudi Arabia and Russia had reached an agreement in principle ahead of the weekend’s OPEC meeting. Members of the oil producing group are hoping that the production cut of nearly 10 million barrels per day will be enough to prompt a meaningful rise in oil prices.