Market round-up 9-13 March

Thomas Watts


This week

In a public service announcement this week, to combat the spread of the Coronavirus, the NHS recommended you sing ‘Happy Birthday’ twice in your head to ensure you wash your hands for the full 20 seconds. However, the week’s events and ensuing panic that followed led investors to aggressively wash their hands of any risk assets, rinsing over $10 trillion from global markets. 

The taps were certainly on full flow for OPEC during the beginning of the week as a three-year pact between Russia and the other oil producing nations ended in acrimony. News emerged that Moscow refused to support deeper oil cuts to cope with the outbreak of the Coronavirus with the oil cartel, OPEC, responding by removing all limits on their production. The thought of oil production heading up to full tilt with demand falling due to the outbreak caused the price of Brent Crude to plunge by about a third, its biggest daily loss in over a decade. There was no let up for the oil prices throughout the week as falling demand, especially in the aerospace industry, dragged black gold prices to levels not seen since the 2016 oil crash, hovering at $30 a barrel. A seeming race to the bottom for oil also brought misery to the high yield market. Shares in oil majors such as BP and Royal Dutch Shell unsurprisingly dragged the FTSE 100 down, both falling c.15% on the day.

The plunge was not just confined to domestic markets; such was the panic to sell in the US, a 15-minute trading halt was called after the S&P 500 fell 7% shortly after the market opened. With one of the most volatile days in market history, many investors hoped the worst of the market panic was over. Unfortunately, Monday was just the beginning. 

As investors dumped equities throughout the week, the yield on the 10-year Treasury plunged to new record lows. As yields fell, Coronavirus cases rose just as sharply, passing 130,000 globally by the middle of the week. The surge in cases eventually forced the World Health Organization (WHO) to label the outbreak as a pandemic, due to its spread in multiple countries simultaneously.  

By Thursday, already battered equity markets had more cold water poured over them, this time by US President, Donald Trump. Falling way into bear market territory, investors were left dumfounded as the man in the White House announced that the United States would suspend all travel from Europe, except Britain and Ireland, as he unveiled measures to contain the Coronavirus. Carnage ensued as European markets were left nursing one-day losses not seen since 1987, with the FTSE 100 falling 10.87% and the Eurostoxx plummeting a staggering 12.40%, led by damage inflicted on airlines and travel companies. Boeing fell a further 13%, taking its total losses to 40% for the week. Wall Street’s fear index jumped to its highest since the financial crisis with traders unconvinced of President Trump’s heavy-handed tactics. Once again US circuit breakers were triggered in the rush for exit as inaction from the European Central Bank also led investors to reach for the sell button. By the end of the day, all three major US indices, the Dow Jones, S&P 500 and the NASDAQ were in a bear market territory, having fallen by c.25% since February. 

Relief was in short supply during what was an admittedly tumultuous week for markets. However, some hope can be taken from the actions of both the Bank of England and Number 11 as the two combined to throw what was left of the kitchen/bathroom sink at the potential effects of the Coronavirus on the domestic economy. With the Bank of England seeing it fit to cut base rates by 0.5% on Tuesday. Policymakers reduced rates from 0.75% to 0.25%, taking borrowing costs back down to the lowest level in history. The Bank said it would also free up billions of pounds of extra lending power to help banks support firms.

The annual Budget, usually a much more significant event for markets in previous years, also promised to kickstart the UK economy if the virus really starts to have an effect. Rishi Sunak’s first time at the despatch box saw the new Chancellor announce £12 billion for temporary, timely and targeted measures to provide security and stability for people and businesses. Business rates will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000. After such a volatile week, many will also rejoice that duties on spirits and beers have been frozen. 

Markets did recover some of their losses on Friday, with strong gains seen in Europe and US indices as investors anticipated supportive policy measures from both governments and central banks. Germany did not disappoint, announcing it would spend whatever is required to ease the economic pain, while the European Commission has also cleared the path for significant fiscal stimulus. There was further positive news from China as Apple re-opened the final four stores in the country. Only a month ago all 42 stores had been closed in China – this provides further evidence the world’s second largest economy is beginning to heal after the initial outbreak of the Coronavirus.

The week ahead

With the events of last week leaving global bourses licking their wounds, it is difficult to see what could drive further market movements, other than any additional information on the spread of the Coronavirus.

Even with this in mind, there is more than enough economic data to give us a firmer gauge of both the domestic and global economy, starting with Monday’s Rightmove Housing Price Index data, released on Monday. With spring ushering in the busiest time of the year for the property market, the numbers should make for fascinating reading, especially for those thinking about moving. The data will detail the change in the asking price for homes on sale in the UK and will act as a leading indicator of the housing industry's overall health. Rising house prices attract investors and tend to spur industry activity, especially for related businesses such as estate agents and lenders. 

The main concern for most of those looking to relocate is how much they can borrow, often decided by banks based on monthly wages. Fortunately, the following day, the Office for National Statistics releases Average Hourly Earnings numbers, representing the three-month moving average compared to the same period a year earlier. Although wage growth has repeatedly been stronger than inflation over recent months, interestingly, it has been relatively disappointing when compared to analysts’ expectations. 

With central banks around the world having cut rates to combat the impact of the Coronavirus, seemingly following the US Federal Reserve’s lead, the next meeting and subsequent media announcement from the Fed will be on Thursday. Last week’s market movements, President Trump’s flight ban from Europe and the unabating spread of the Coronavirus across the US may mean that the central bank may have to pull another rabbit out of the hat to stimulate the world’s largest economy. 

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in March 2020.