Weekly Report

20.04.2020
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Global equities advanced as investors pinned hopes on the easing of lockdown measures and a potential Covid-19 treatment.

Economic data continued to show the significant toll the pandemic is taking, as the IMF warned of the sharpest downturn since the 1930’s.

Markets

  • US equities halted their recent upward momentum at the start of the week as investors grew cautious ahead of the commencement of the latest earnings season. The UK and most of the European markets were closed for the Easter Monday holiday.
  • According to FactSet, analysts on Wall Street have reduced their earnings per share estimates for the constituents of the S&P 500 index by more than 15% over the first three months of the year; similarly in Europe, expectations are for a 20% decline in profits this year from the constituents of the Stoxx 600 index.
  • Despite concerns over the damage caused to corporate earnings by the Covid-19 pandemic, global equities advanced on Tuesday with the S&P 500 adding 3.1% to reach its highest level in a month. The UK’s FTSE 100 index was the only major index to close lower, largely reflecting the strengthening of sterling.
  • Global equity markets wobbled midweek as investor concerns rose on the back of the sombre tone struck by the latest corporate earnings and economic data release.
  • However, this was short-lived and the equity markets recovered to end the week on a positive note, supported by an easing of lockdown measures in a number of countries, alongside indications that Gilead Sciences, a pharmaceutical company, was progressing well in developing a treatment for the coronavirus. The market rise meant that the S&P 500 is now approximately 30% above its mid-March lows and just 12% below its level at the beginning of the year.
  • Nevertheless, investors continued to purchase safe-haven assets as poor economic data stoked fears over the possible scale of the anticipated global recession. Gold reached its highest level since 2012 at $1,728 a troy ounce, before later paring back some of the gains.

Economics

  • JP Morgan Chase, the largest US bank, announced that profits had fallen by 69% in the first quarter, and Wells Fargo, Bank of America, Citigroup and Goldman Sachs banks also reported sharply lower profits with large provisions being made for credit losses.
  • To help fight the impact of the pandemic, the G20 nations agreed to freeze bilateral government loan repayments from low-income countries until the year end; private sector creditors were also asked to consider offering similar forms of help.
  • The stability of the Italian government’s rising levels of debt came under the spotlight after eurozone finance ministers failed to agree to the joint issuance of “corona bonds”; Italian debt is expected to rise to 150% of GDP this year from 134% in 2019.
  • The IMF predicted that the global economy will contract by 3% in 2020, and warned that despite unprecedented levels of support “the crisis presents a very serious threat to the stability of the global financial system”.
  • In the US, a further 5.2m first-time jobless claims were filed last week, bringing the total to 22m since the lockdowns commenced in March.
  • US industrial production experienced its largest monthly drop since the end of the second world war, plummeting by 5.4% in March. Retail sales fell by 8.7%, the biggest amount since records began in 1992 and wiping out four years of growth. Despite the poor month, analysts predict that April will be worse still.
  • In Europe, industrial production slipped 0.1% m/m in February, prior to the introduction of lockdown measures across the bloc.
  • Eurozone inflation slowed in March, falling to 0.7% y/y from 1.2% in February.
  • China’s economy contracted for the first time in over 40 years as GDP fell to 6.8% y/y in Q1 reflecting the severe impact of the coronavirus outbreak.
  • However, recent Chinese export data surprised on the upside, signalling that the country is recovering from the pandemic ahead of expectations. However, Chinese officials warned that there may be more bad news to come as the country’s biggest export markets, North America and Europe, currently remain in widespread lockdowns.
  • Chinese industrial output fell 1.1% y/y in March, better than the consensus view of a 7.3% drop; however, retail sales fell 15.8%, worse than expected.

The Week Ahead

Monday-
TuesdayUK unemployment rate; Europe consumer confidence
WednesdayUK inflation
ThursdayUK retail sales; UK manufacturing PMI; UK services PMI; US manufacturing PMI; US services PMI;
Europe manufacturing PMI; Europe services PMI; Japan manufacturing PMI; Japan services PMI
FridayUK consumer confidence

Index Data

Stock Markets Apr 17 Apr 10 % Change
FTSE 100 5787 5843 -0.95%
FTSE All Share 3190 3233 -1.33%
S&P 500 2841 2790 1.84%
Nasdaq Composite 8577 8154 5.20%
Dow Jones Industrial 23929 23719 0.88%
FTSE Eurofirst 300 1308 1301 0.58%
Xetra Dax 10626 10565 0.58%
Nikkei 19897 19499 2.05%
MSCI Asia ex Jap $ 598 581 2.82%
MSCI EM $ 885 888 -0.31%
MSCI World $ 1964 1971 -0.32%
Bond Yields Apr 17 Apr 10 Bps Change
UK Gov 10 yr 0.29 0.33 -4
US Gov 10 yr 0.66 0.73 -7
German Gov 10 yr -0.48 -0.34 -14
Japan Gov 10 yr 0.00 0.00 0
Commodities Apr 17 Apr 10 % Change
Brent Crude ($/bbl) 28.57 32.03 -10.80%
Gold ($/oz) 1729.50 1680.65 2.91%
Copper ($/lb) 2.35 2.28 3.07%
Currencies Apr 17 Apr 10 % Change
$ per £ 1.250 1.247 0.24%
€ per £ 1.148 1.140 0.70%
¥ per $ 107.525 108.505 -0.90%

Source: FE Analytics, Financial Times, JP Morgan Asset Management

Risk warning: Investors should be aware that past performance of investments is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them may fall as well as rise. The content of this bulletin is for general information and reflects the general market view of Parallel Investment Management Ltd. - it should not be interpreted as recommendations or advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content.

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