Market round up 13-17 April

Thomas Watts

After a glut of dire economic data, predominantly brought on by the outbreak of COVID-19, the beginning of this week saw good news easier to find than an Easter egg during lockdown.


This week

After a glut of dire economic data, predominantly brought on by the outbreak of COVID-19, the beginning of this week saw good news easier to find than an Easter egg during lockdown. 

China’s Trade Balance, the difference in value between imported and exported goods during the previous month, showed to have slowed again during March after plunging during the height of the virus outbreak in the country over the previous two months. Although the data was still poor, it does highlight that a partial recovery has taken place. 

European shares were also given a slight boost by Spain feeling able to open some businesses, although many shops, bars and cafes are still set to remain closed for the foreseeable future. The Spanish IBEX notched a 1.5% gain, helping the more general Eurostoxx 600 to rise over 1%. Also helping to buoy the mood was data showing that Coronavirus cases were now starting to plateau in some of the worst hit southern European nations.

Any optimism felt on the continent was certainly not shared in the US as the start of their corporate earnings season reflected many of the worries economists had that the Coronavirus would seriously damage revenues. It was the banks’ turn to go first, with financial heavyweights including Citigroup and JP Morgan reporting the first of many potential disappointments with significant declines in earnings as they warned of expected credit write-offs. Not helping the mood was Goldman Sachs’ quarterly profit nearly halving as it set aside more cash to cover for an expected slew of corporate loans being defaulted on. 

On the economic data front, numbers showed that US retail sales plunged 8.7% in March, manufacturing output dropped by the most in over 74 years and a survey showed manufacturing activity in New York state, the emerging epicentre of the virus outbreak in the US, fell to its lowest in the data’s history. Unemployment data from the US continued to make for scary reading, with this week’s number of initial jobless claims exceeding five million. To put this into context we have witnessed jobless claims reach 22 million over the last four weeks in the US, effectively wiping out the number of jobs that had been created since the financial crisis.

Commodity markets also compounded investor woe as oil prices settled below $19 a barrel during the middle of the week as the International Energy Agency forecast a record fall in demand. The heavily oil-exposed FTSE 100 bore the brunt of the investor sentiment towards black gold with Shell and BP both falling over 6% in response to the what could be the lowest demand in 25 years. Whilst blue chips reeled, mid-caps were also knocked as the prospect of a longer lockdown hurt the retail and leisure sector in particular.

Despite economic data continuing to make for unpleasant reading, markets have remained resilient this week as investors look through the short-term data. With equity markets often being forward-looking there is an expectation that economies will bounce back from the deep shock we are currently witnessing, supported by unprecedented central bank and government support.

The week ahead

With another week potentially dominated by COVID-19 headlines, economic data releases should give us an idea of just how the virus has disrupted the global economy so far.

With southern Europe feeing much of the pain from Coronavirus so far, German ZEW Economic Sentiment Data should provide something of a barometer for the bloc as a whole, being the largest economy in continental Europe. The survey includes about 300 German institutional investors and analysts who are asked to rate the relative six-month economic outlook for Germany. Through the nature of their jobs, institutional investors are better informed than most about the state of the economy and their views carry much more weight. Changes in their sentiment can often be a signal of future economic activity. As a reference point any reading above 0.0 indicates optimism; the reading for March was -49.5 with the onset of the Coronavirus in Europe. 

Across the Channel, Wednesday brings Consumer Price Index (CPI) from the Office for National Statistics. Price data is often considered one of the most important pieces of economic statistics available as the cost of products and services account for a majority of overall inflation. Inflation is important to currency valuation as rising prices often lead the central bank to raise interest rates out of respect for their inflation containment mandate.

As the week draws to a close, Thursday sees a busy day of data releases both domestically, on the continent and across the pond. With a raft of Purchasing Manager Index (PMI) coming from Europe and the UK, the US makes public its unemployment claims figures. With America having seen consecutive records broken for those losing their jobs due to COVID-19 over the last few weeks, we should expect another hefty piece of dour news as the virus takes a firmer grip on 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 April 2020.