Market Commentary 27th April 2020 from Charlie Hancock

Posted by melaniebond
Market Commentary 27th April 2020
Equity Indices
UK equity indices declined across the week amidst further oil price weakness and the release of bleak economic data across the globe. The FTSE 100 declined by 0.60% and the FTSE 250 index posted a 1.08% loss.

A slump in oil prices impacted sentiment on Tuesday, with significantly reduced demand for oil being a stark indicator of how much economic activity has declined. Both of the key UK equity indices declined sharply before recovering most of the losses throughout the remainder of the week.

In healthier economic conditions, a falling oil price is usually a boost for the share price of airlines, however, as it becomes clear that international travel is likely to be restricted for some time, stocks in this sector continue to struggle. British Airways owner, International Consolidated Airlines Group PLC, saw their share price decline by 6.73% across the week, with easyJet PLC seeing a 10.30% decline. Sentiment across the travel sector was weak, with InterContinental Hotels Group PLC seeing a 5.64% decline.

All major European indices moved lower last week, which was reflected in a 1.72% decline in the FTSE All World Index – Europe ex UK. Germany’s DAX index posted a 2.73% loss.

European equities were also impacted by the gloomy sentiment arising from headlines regarding the oil price, with a sharp sell-off occurring on Tuesday. The recovery during the second half of the week was hampered by EU leaders failing to agree on proposals for an economic recovery program and the release of gloomy economic data. A key German business confidence survey recorded the steepest fall on record between March and April, with Purchasing Managers Index (PMI) data from across Europe showing record low readings.

Nestle reported upbeat earnings results and maintained its outlook for 2020, helping to limit losses for broad European indices. The food giant’s share price defied the wider market to rise by 0.49% across the week.

The S&P 500 declined by 1.32% and the Dow Jones Industrial Average moved 1.93% lower. In a similar fashion to other regions, US equities were sold off heavily on Tuesday, before recovering some of these losses by the end of the week. Investors were reacting to mixed earnings results from US companies last week, with some better than expected results helping to lift markets from Tuesday’s decline.

News that an experimental treatment for Covid-19 made by Gilead Sciences Inc had delivered disappointing results in a trial contributed to US equities being flat on Thursday. The recovery resumed on Friday, with investors encouraged by the US government implementing a further $484 billion coronavirus aid package. The bill included support for small business, as well as funding for hospitals and coronavirus testing.

Asian equity markets were broadly negative last week, with the FTSE All World Index – Asia Pacific declining by 2.27%. Japan’s Nikkei 225 index posted a 3.19% loss and China’s Shanghai Composite Index fell by 1.06%.

Equities in Japan struggled last week after the government stated that the Japanese economy is rapidly worsening. The government’s monthly economic report showed that private consumption and exports have slumped, with the government particularly concerned about weakness in the labour market.

Bond Yields
UK government bond yields were relatively stable last week. The 10-Year Gilt yield declined by 1 basis point across the week to 0.29%.

Whilst equity markets moved lower last week, there was seemingly no significant rise in demand for government bonds. Yields declined significantly during February and March as central banks around the globe cut interest rates and investors piled into ‘safe haven’ assets. With the impact of these factors fading, at present there are no obvious catalysts for yields to move lower.

The 10-Year German Bund yield rose by 1 basis point to -0.47%.

The widening of spreads between German and Italian government debt continued for most of last week, with the 10-Year Italian government bond yield reaching 2.17% on Tuesday before finishing the week at 1.89%.

US government bond yields declined slightly last week. The 10-Year Treasury yield reached 0.60% on Friday.

Support for government debt in the US was higher than demand in other regions last week, with investors seemingly concerned about the worsening economic picture in the US. Treasury yields dropped on Friday after the release of the initial jobless claims data, which showed a further 4.4 million people had filed for unemployment benefit during the previous week.

GBP / USD – Current 1.2367 Previous 1.2499

GBP / EUR – Current 1.1423 Previous 1.1496

The Pound lost ground last week. Sterling fell by 0.64% against the Euro and declined by 1.06% against the US Dollar, with the greenback strengthening against most major currencies.

Gold saw reasonable gains last week, with the spot price rising by 2.78% to reach $1,729.60 per ounce.
Oil prices continued to slide last week, with news regarding the negative price for futures contracts dominating headlines. Concerns around storage capacity running out briefly caused the price of contracts for the delivery of oil in May to turn negative. The spot price of Brent crude shed 23.65% across the week to reach $21.44 per barrel.

Whilst the significant reduction in demand is putting downward pressure on oil prices, the negative pricing was primarily due to technical factors which saw traders offloading May’s futures contracts before they expired.