Market Commentary 11th May 2020 from Charlie Hancock

The larger cap FTSE 100 index was boosted by strong performance for oil producers Royal Dutch Shell and BP, with their share prices rising by 5.30% and 5.71% respectively. Travel stocks came under increased pressure as the uncertainty surrounding demand levels persisted. British Airways owner, International Consolidated Airlines Group PLC, saw their share price decline by 11.42%, with budget airline EasyJet PLC seeing a 6.44% fall.

Sentiment for investors in Europe was broadly negative last week. Official forecasts from the European Union predicted the region’s economy would decline by 7.5% this year, before growing by 6% in 2021. Germany reported a 15% decline in factory orders during March, which was reportedly the biggest decline since records began almost 30 years ago.

Whilst the economic data painted a gloomy picture, hopes for a swift recovery were boosted by German Chancellor, Angela Merkel, announcing that all shops could be re-opened. Germany also confirmed that Bundesliga football can resume and schools will begin to reopen during the next few months.

Strong performance for Technology and Energy stocks helped to lift US equities, with investors focussing on rising oil prices and recent revenue gains for technology providers such as Netflix and Zoom. US-China relations appeared to be stable during the week, helping to maintain the positive sentiment.

Some states began to lift lockdown measures, fuelling hopes that the economy can begin to recover. A further 3.2 million initial jobless claims for the week resulted in reports suggesting that the US unemployment rate is now around 15%.

Investors were encouraged by a surprising increase in Chinese export data last week. Reports suggested that the Chinese government are considering scrapping a GDP growth target for the year, with a broad economic agenda expected to be unveiled at the end of this month. Elsewhere in Asia, the economic data released during the week indicated that economies across the region are shrinking. GDP data for the first quarter of 2020 showed that the economy in the Philippines contracted for the first time since the Asian Financial Crisis of 1998.

The US treasury indicated that they would continue to issue long term debt in order to finance the widening budget deficit. This resulted in yields rising as investors chose to focus on the increasing supply of Treasuries, rather than the bleak economic data released during the week.

GBP / EUR – Current 1.1448 Previous 1.1378

The Pound fell by 0.77% against the US Dollar, but gained 0.62% against the Euro.

Sterling fell sharply against the Dollar on Wednesday, following the release of data showing a much sharper than expected slowdown in UK construction activity.