Weekly Report

27.04.2020
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Concerns over coronavirus infection rates and lockdowns were overshadowed by a historic fall in oil prices.

Bleak economic data and first quarter earnings reports began to highlight the scale of slowdown.

Markets

  • Most major global equity markets declined last week as weak economic data combined with an unprecedented fall in oil prices supressed sentiment.
  • US WTI oil plummeted to -$37.63pb on Monday as falling demand and current production levels left storage facilities near capacity; producers had little choice but to pay buyers to take and store each barrel.
  • Despite US oil futures markets moving back into positive territory on Tuesday, the major equity indices continued to decline as weakness spread to technology-related shares on the back of analysts cutting estimates for tech-giants Alphabet and Facebook.
  • The volatility in the oil sector led some analysts to question the strength of the recent rally in equities, given that a contracting economy often translates into falling commodity prices.
  • China, which is the world’s largest importer of oil, is one of the few economies set to benefit from the recent moves in oil. As a rough rule of thumb, a 0.5% fall in oil imports as a percentage of GDP is equivalent to a rise of 0.25% in output.
  • Equities regained some momentum midweek, helped by hopes of additional fiscal stimulus and rumours of progress on potential vaccine for COVID-19.
  • The US was in the process of approving a further stimulus plan for around $450bn with talk of even more stimulus further down the line.
  • However, the mid-week gains proved short-lived after Gilead Sciences’ potential antiviral drug, Remdesivir, flopped in its first clinical trial, dashing hopes for a quick medical solution to the pandemic.
  • Traders were also becoming nervous ahead of China’s labour day holiday at the start of May, which is unlikely to provide its usual boost to consumption as people avoid unnecessary travel.
  • In currencies, the Brazilian real hit a record low, weakening to R$5.71 against the US dollar, driven by the government’s handling of the pandemic and expectations of a rate cut.
  • Among haven assets, gold remained in demand and sat near a seven-year high, while longer-term government bond yields ended the week modestly lower.

Economics

  • PMI data for the major developed economies revealed a record collapse in the service sector alongside a more moderate decline in manufacturing.
  • The European services PMI came in at 11.7, 10 points lower than expected, while US services missed expectation by 16 points.
  • In the UK, the services PMI tumbled to an all-time low of 12.3 in April, down from 34.5 in March and well below economists’ expectations of 29.0. Hotels, restaurants and other consumer-facing businesses were the hardest hit, with many firms reporting a total halt in activity. Meanwhile, the manufacturing PMI fell to 32.9 in April from 47.8 in March and came in below market consensus of 42.0.
  • The ONS revealed that the International Labour Organisation unemployment rate ticked up to 4.0% in the three months to the end of February, up from 3.9%. Meanwhile average earnings growth fell to 2.8% from 3.1%, compared to consensus expectations of 3.0%.
  • UK CPI inflation eased to 1.5% in March y/y, down from 1.7% in February, as fuel and clothing prices fell in the run-up to the coronavirus lockdown.
  • EU leaders agreed to build a €480bn emergency fund to help recover from the virus but left the decisive details on how it is to be funded, and whether it will be grants or loans, until the summer. Nevertheless, Germany has significantly changed its stance and is generally supportive, whilst Italy is keen to rapidly reach a compromise.
  • Existing US home sales fell by the most in more than four years, as lockdown measures brought the market to a standstill. The National Association of Realtors said existing home sales fell 8.5% to a seasonally adjusted annual rate of 5.27m units last month. The fallout from the pandemic also hit new US home sales, which slipped by the most in more than six years in March.
  • Another 4.4m Americans filed for first-time unemployment benefits last week, taking the total seeking jobless claims in the US to a record 26m. Elsewhere in the US, gauges of current activity fell sharply, while many were surprised by a small increase in core (excluding aircraft and defense) capital goods orders in March.

The Week Ahead

MondayBank of Japan rate decision
TuesdayJapan unemployment rate; US consumer confidence
WednesdayUS GDP; US FMOC rate decision
ThursdayEurope unemployment rate; Europe GDP; Europe CPI flash; ECB deposit rate; Germany unemployment; Japan retail sales, Japan industrial production; US PCE inflation
FridayUS ISM manufacturing

Index Data

Stock Markets Apr 24 Apr 17 % Change
FTSE 100 5752 5787 -0.60%
FTSE All Share 3169 3190 -0.67%
S&P 500 2800 2841 -1.47%
Nasdaq Composite 8512 8577 -0.76%
Dow Jones Industrial 23483 23929 -1.86%
FTSE Eurofirst 300 1292 1308 -1.21%
Xetra Dax 10336 10626 -2.73%
Nikkei 19262 19897 -3.19%
MSCI Asia ex Jap $ 584 598 -2.36%
MSCI EM $ 892 885 0.79%
MSCI World $ 1974 1964 0.51%
Bond Yields Apr 24 Apr 17 Bps Change
UK Gov 10 yr 0.30 0.29 1
US Gov 10 yr 0.60 0.66 -6
German Gov 10 yr -0.46 -0.48 2
Japan Gov 10 yr -0.02 0.00 -2
Commodities Apr 24 Apr 17 % Change
Brent Crude ($/bbl) 21.59 28.57 -24.43%
Gold ($/oz) 1736.25 1729.50 0.39%
Copper ($/lb) 2.35 2.35 0.00%
Currencies Apr 24 Apr 17 % Change
$ per £ 1.234 1.250 -1.28%
€ per £ 1.141 1.148 -0.61%
¥ per $ 107.435 107.525 -0.08%

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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