Market Commentary 11th May 2020 from Charlie Hancock

Posted by melaniebond
Market Commentary 11th May 2020
Equity Indices
UK equities were in positive territory last week. The FTSE 100 rose by 3.00% and the FTSE 250 index posted a 0.62% gain. Sentiment was generally positive around the globe, with investors looking beyond the gloomy economic data to focus on the post coronavirus crisis recovery. Headlines reported that the UK government are looking at plans to ease lockdown measures, adding to hopes that economic activity will begin to recover in the near future.

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.

European equities were mixed last week. Germany’s DAX index rose by a marginal 0.39%, with the broader FTSE All World Index – Europe ex UK posting a 2.60% loss amidst declines for equity indices in Italy, France and Spain.

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.

US equity indices posted reasonable gains last week. The S&P 500 index climbed by 3.50% and the Dow Jones Industrial Average index rose by 2.56%.

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%.

Asian markets were mixed last week, resulting in the broad FTSE All World Index – Asia Pacific declining by 0.84%. The Nikkei 225 index climbed by 2.85% and the Shanghai Composite Index posted a gain of 1.23%.

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.

Bond Yields
UK government bond yields were broadly unchanged across the week. The 10-Year Gilt yield fell by 1 basis point to 0.24%, with the Bank of England’s dismal outlook for the UK economy appearing to have no significant impact on demand for government debt.
German government bond yields rose last week, resulting in the spread between Bund yields and debt from periphery nations such as Italy and Greece increasing. The 10-Year Bund yield rose from -0.59% to -0.53%.
US government debt yields also rose, with the 10-Year Treasury yield reaching 0.69%.

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 / USD – Current 1.2410 Previous 1.2506

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.

The Gold spot price was broadly flat across the week at $1,702 per ounce. Despite bleak economic data being released throughout the week, investors allocated increased amounts to risk assets, leaving support for ‘safe haven’ assets such as gold limited.
Oil prices continued to recover last week, with hopes that the easing of lockdown measures around the globe will prompt a quick turnaround in demand levels. The Brent Crude spot price rose by 17.13% to reach $30.97 per barrel.