Market round-up 23-27 March

Thomas Watts

After a tumultuous month or so for global markets, predominantly ushered in by the spread of COVID-19, the past week saw a level of semblance return as the US Federal Reserve aimed their stimulus “Bazooka” straight at the heart of a virus ravaged economy.


This week

After a tumultuous month or so for global markets, predominantly ushered in by the spread of COVID-19, the past week saw a level of semblance return as the US Federal Reserve aimed their stimulus “Bazooka” straight at the heart of a virus ravaged economy. 

Interestingly, the word bazooka is derived from the Dutch word for trumpet Bazuin, lending its name to the anti-tank weapon that bares a vague resemblance to its shape. The start of the week certainly sounded like music to the market’s ears as for the first time in history, the Fed vowed to purchase a range of corporate bonds, backstop direct loans to companies and will soon roll out a program to get credit to small and medium-sized businesses. It also said it will expand its asset purchases by as much as needed to stabilise financial markets. 

Although investors’ initial reactions were of caution, by Tuesday the Bank’s efforts to shield the economy had gained some traction. With the US dollar having gained around 10% in two weeks against a basket of major currencies as a clamour for safe haven assets drained liquidity from the market, the greenback started to ease its way down during the remainder of the week. Investment grade credit also benefited from the Fed’s intervention, after the spread of U.S. investment grade credit over safer Treasuries rising to its highest since May 2009. 

However, it was in equity markets that the Fed’s package really struck a tune as US benchmarks all racked up the biggest one-day gains since 1933. Also spurred on by news that Senior Democrats and Republicans said they had approved a deal on a $2 trillion stimulus bill, aimed at providing financial aid to Americans out of work and help for distressed industries. A separate proposal in the U.S. House of Representatives to grant airlines and contractors a $40 billion bailout let the S&P airlines index soar by 15%. 

A rally in global markets that had actually allowed the domestic FTSE 100 to re-enter bull market territory was cut short at the end of the week as news broke that the amount of infections tearing through southern Europe and the US had now overtaken those in China. Providing investors with a perfect excuse to bank gains from one of the best weeks since 2008, the FTSE 100 slumped c.5% with housebuilders leading the downward trajectory, appearing out of tune with the government’s urge not to move house during the outbreak. Matters were compounded further with Redrow, one of the country’s largest construction companies admitting it was in talks to secure emergency credit. Even those companies making some profit from the enforced lockdown such as Domino’s Pizza slumped as the firm confessed it could deliver on everything but its dividend, halting all payouts. 


The week ahead

As we transition into April, it is interesting that the Romans gave the month the Latin name Aprilis, from the word aperire, "to open", in allusion to it being the season when trees and flowers begin to "open", which is supported by comparison with the modern Greek use of άνοιξη  (opening) for spring. Sadly, in a more modern-day context nothing could be further from the truth as the world endures further lockdowns and curfews due to the COVID-19 outbreak. 

With even the doors of No 11 now having to stay firmly shut, we should be in for another volatile week on the markets. We should obtain some feeling as to how the loss of business and concerns about job losses have fed through to the consumer with Tuesday’s Consumer Confidence numbers. With consumer confidence having been shaky at best before the recent outbreak, the numbers should show further declines despite every effort from the government and the Bank of England to prop up the economy covering lost revenues and wages for those working in the most affected sectors.  

We should get a better feel for the state of the consumer, this time across the pond on Wednesday. Last week’s dire employment numbers should tell us all we need to know, showing that the number of Americans filing for unemployment surged to a record high. Nearly 3.3 million were forced to register in order to claim jobless benefits for the week ended 21 March, according to Department of Labor data. That is nearly five times more than the previous record of 695,000 set in 1982. Although these may not feed into the data yet, it tells us all we need to know about the longer-term trend. 

The first Friday of the month wraps up the week as always with US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data, will be accompanied by Average Hourly Earnings allowing us to gauge how inflation may manifest in the world’s largest economy. However, with the Fed having already fired its “Bazooka” any action to pre-empt this data may have already occurred.


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.