Market round-up 20-24 April

Thomas Watts

“If you possess something but you can't give it away, then you don't possess it... it possesses you.” Frank Sinatra.


The week that was

The Chairman of the Board would have been thanking his lucky stars that he wasn’t on the committees for any oil companies this week as prices in black gold plunged into negative territory for the first time in their history. The beginning of the week saw oil trade at -$40 a barrel, a quirk of the future markets for May delivery, meaning that effectively a seller would have to pay the receiver $40 to take the barrel of oil off their hands. With Covid-19 having blunted global demand by around 35%, and a recent deal between OPEC members to cut 10 million barrels a day output (10%) being too little, too late, the world is now awash with cheap oil. With storage for barrel fast running out, it simply is not worth taking delivery of oil for the coming month.

Predictably, markets struggled to gain traction with the news, with the domestic FTSE 100 feeling most of the pain as oil heavyweights BP and Shell dragged the market lower. Not helping matters on the domestic front was news from the Office for National Statistics (ONS) that employment in Britain grew slower in March than in February; official figures showed on Tuesday that an early sign of the impact of the coronavirus shutdown on the economy will be a strong negative impact on the jobs market. Government budget forecasters last week said unemployment could rise as high as 10% with an extra two million people losing their jobs if a three-month lockdown was only slowly lifted over the next three months. Inflation also reaffirmed the deepening gloom, coming in at 1.5%, falling from highs of 1.8% in February.  Falls in the price of motor fuels and clothing resulted in the largest downward contributions to the change.

The jobs data looked just as bleak across the pond as they showed a stunning 26.5 million Americans sought unemployment benefits since mid-March, confirming that all the jobs gained during the longest employment boom in U.S. history, lasting since the end of the Global Financial Crisis have been wiped out as the spread of the coronavirus continues to unravel the world’s largest economy. Many analysts are now predicting close to 30 million job losses during the COVID-19 pandemic and an unemployment rate at levels not seen since the Great Depression. The US economy created 22 million jobs during the employment boom which started in September 2010 and abruptly ended in February this year.

The week ahead

The coming week sees another tumultuous month for the markets drawing to a close. As we now head into the summer months, the coming weeks should give us some idea as to what we can expect from both markets and various government responses as death rates from COVID-19 start to show signs of plateauing. Helping us gauge just how much damage the virus has done to the world economy and how events may be at a tipping point, the next five days should prove crucial with a raft of critical economic data being released. 

As the sun comes up on Monday morning, it will be in the Land of the Rising Sun we start proceedings, as the Bank of Japan delivers its outlook report for the nation. The bank will provide a valuable insight into Japan’s economic conditions and inflation outlook - the key factors that will shape the future of monetary policy. Being a predominantly export driven nation, Japan has felt the full force of a global slowdown in trade due to the spread of the Coronavirus. With the yen classed a classic safe haven currency, during these times of market stress, it would be difficult to see anything the bank could say that could devalue their currency at this point in time. 

With the US economy showing major signs of faltering with record unemployment numbers the previous week, this coming week will allow analysts to assess further how the world’s largest economy is performing with GDP figures out during the middle of the week. GDP is useful in that it is the broadest measure of economic activity and the primary gauge of the economy's health, measuring the annualised change in the inflation-adjusted value of all goods and services produced by the economy. 

The end of the week will see a quieter finish than usual as the majority of Europe closes in observance of Labour Day. However, here in the UK, it’s business as usual with the Bank of England releasing its Monthly Mortgage Approval data, detailing the number of new mortgages approved for home purchases during the previous month. The number should present a stark fall as the housing market starts to ground to halt due to COVID-19, in what should be its busiest period.

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.