Market Commentary 20th April 2020 from Charlie Hancock

Posted by melaniebond

Market Commentary 20^th April 2020

Equity Indices

The FTSE 100 was broadly flat across the week at -0.08%, after recovering from falls on Tuesday and Wednesday. A falling oil price weighed on the energy sector, which dragged down most major indices around the globe. The FTSE 250 index declined by 1.39%.

Sentiment turned negative during Wednesday’s session after news reports highlighted some of the weakness in recent economic data. Poorer than expected retail sales data, particularly for the US and the UK, fueled a brief sell off around the globe. Concerns that falling consumer spending will have a significant impact on economies which are reliant on a healthy consumer caused investors to be nervous. By the end of the week, signs of coronavirus cases slowing helped markets recover some of the mid-week losses.

The weakening oil price caused oil related stocks to perform poorly against the wider market. BP PLC declined by 9.59% and rival Royal Dutch Shell PLC fell by 8.75%. Pharmaceutical giant, AstraZeneca PLC, saw strong performance after the company announced that a new trial is showing their lung cancer drug, Tagrisso, to be very effective. Their share price rose by 11.92% across the week.

Europe

European equity indices were also broadly flat, with Germany’s DAX index rising by 0.58% and the broad FTSE All World Index – Europe ex UK declining by 0.06%.

After suffering sharp falls on Wednesday, most European indices had recovered by the end of the week, with announcements on the easing of lockdown measures helping to boost sentiment. German Chancellor, Angela Merkel, confirmed that schools will start re-opening in May and smaller retail stores will be allowed to open in the week commencing 20^th April.

As companies began to report declining revenues and profits in the US, German sportswear maker, Adidas, announced they would be receiving a government backed loan of €3 billion and suspending dividends.

During a gloomy week for economic data and earnings results, the S&P 500 advanced by 3.04% and the Dow Jones Industrial Average index rose by 2.83%. Investors shrugged off the weak economic data to focus on the potential for lockdowns to be eased and promising trials for a coronavirus treatment.

Data for US initial jobless claims showed that unemployment is continuing to rise rapidly, with some 22 million jobs being lost over a 3-week period. US retail sales data fell by a record 8.7% during March, which was higher than estimated and more than double the previous record decline seen during the recession which followed the financial crisis of 2007/08. In addition, earnings results from some of the US’ largest banks showed sharp declines in revenue during the 1^st quarter, with results in Q2 expected to be even weaker.

President Trump announced guidelines for lifting lockdowns, citing the importance of limiting economic damage. Ultimately the responsibility for deciding when and how to ease restrictions will be deferred to state governors, however, investors seemed to be encouraged by the announcement. In addition, headlines reporting that trials for an Ebola treatment drug are showing positive results in treating coronavirus lifted market sentiment.

Asia

The broad FTSE All World Index – Asia Pacific was up by 2.83% across the week. Japan’s Nikkei 225 index rose by 2.05% and China’s Shanghai Composite Index gained 1.50%. Sentiment in Asia was positive last week after better than expected economic data from China.

China reported that its economy contracted by 6.8% during the first quarter. Whilst this headline figure is a significant decline, it was much better than the double digit declines predicted by some analysts. Data for industrial production, retail sales and international trade also made for bleak reading, but the figures were better than expected and suggested that China’s economy is now on the path to recovery.

Bond Yields

UK government bond yields were broadly unchanged last week, with the 10-Year Gilt yield declining marginally to 0.30%. With support for equities remaining in place last week, there was little demand for UK government debt.

Europe

The 10-Year German Bund yield declined from -0.34% to -0.48%. The spread between bund yields and those issued by governments in periphery nations, such as Italy and Greece, widened. This signals that investors are concerned about the outlook for Europe’s weaker economies.

US government bond yields declined last week, despite equity markets experiencing reasonable gains. The 10-Year Treasury yield declined from 0.73% to 0.64% as investors sought increased exposure.

Currency

GBP / USD – Current 1.2499 Previous 1.2455

GBP / EUR – Current 1.1496 Previous 1.1402

The Pound rose against both the US Dollar and the Euro last week. Sterling was up by 0.35% against the US’ currency and 0.82% against the Eurozone’s.

Commodities

Gold

Gold prices declined by 0.82% to reach $1,683 per ounce. After recovering strongly from the low point seen in mid-March, support for gold faded last week as investors sought increased exposure to riskier assets, such as equities.

Oil

Oil prices declined last week after reports of inventories around the globe nearing capacity. The Brent crude spot price fell by 10.80% to reach $28.08 per barrel.

With oil consumption falling significantly, further pressure will be put on oil producing nations to cut output in order to avoid sustained price weakness. As well as large companies around the globe, some nations, such as Russia and Saudi Arabia, are heavily reliant on revenues from oil.