Investments

Market round-up 30 - 3 April

Thomas Watts

 

This week

One of the first references to April Fools’ Day in the UK was in 1698, when the writer and archaeologist, John Aubrey, commented that on 1 April, several people were tricked into going to the Tower of London to "see the Lions washed" in its surrounding trenches. London’s great tourist destinations even back then, visitors went to the royal menagerie to marvel at caged lions, tigers and even elephants, however there were no soggy lions to be found in the moat…

The Tower’s great menagerie housed all manner of beasts, including an array of bears, not an uncommon sight in the Square Mile today. Indeed, as a slew of mixed economic data was released around the world this week, owing in no small part to the outbreak of COVID-19, the multitude of bears were joined by their bull counterparts, as some economic green shoots appeared.

On Monday, Asian markets saw out the worst quarter since the Global Financial Crisis with a tentative rally as Chinese factories showed some signs of life with a small bounce back in output. China’s official Purchasing Managers index (PMI) data rebounded to 52 for March, up from a record-low of 35.7 in February and smashing analysts’ estimates of just 42. The numbers acted as a ray of light in an otherwise gloomy week, helping the MSCI’s broadest index of Asia-Pacific shares ex Japan to squeeze out gains of 1.1%. That still left it down 22% for the quarter, its worst performance since 2008.

The end of the quarter came on Tuesday, ushering in the sharpest quarterly fall for major US stock indices for over 30 years. It was also the S&P’s biggest first-quarter decline on record as US consumers were advised to stay at home, leading businesses to announce temporary closures and considerable staff furloughs. The pain felt in the US, fast becoming the world’s epicentre for the virus, was plain for all to see in the nation’s employment numbers, released on Thursday. The number of Americans filing claims for unemployment benefits shot to a record high of more than 6.6 million, double that of the record 3.341 million set last week, the US government said. 

The weakness of the US labour market was also compounded by Non-Farm Payroll data which showed that the US economy had lost 701,000 from the work force rather than the -100,000 predicted.

There was some positive news during the second half of the week however, as commodity markets lit up green. After oil had fallen to its lowest levels in 30 years on the back of a ‘race to the bottom’ between Saudi Arabia and Russia, both hoping to undercut the other by flooding the market with cheap oil, it emerged that a truce may be on the horizon. Brent crude soared as much as 47% during Thursday afternoon, its highest daily percentage gain ever as news came in that Donald Trump was brokering a deal between the two oil rich nations that could see output cut by 10 to 15 million barrels per day, around 10-15% of global supply.


Next week

The coming week will see the eyes of the world still firmly fixed on the developments and the spread of COVID-19, especially in Europe. However, rather than the epicentres of Spain and Italy, it will be Austria, more specifically, Vienna that will hold investors’ attention on Monday. With oil prices having touched their lowest levels in 30 years and subsequently seeing their largest one-day rise ever, the Organization of Petroleum Exporting Countries (OPEC) has a timely meeting on Monday to discuss the state of black gold. 

With a four-year accord seemingly being broken by OPEC’s de facto leader, Saudi Arabia, and largest non-member Russia, both nations have attempted to flood the market with cheap oil in an attempt to undercut each other. To compound the issue, analysts believe that with 3 billion people now in lockdown, demand for oil has fallen more than 20%. With news breaking on Thursday that a truce may be in the offing, more focus than usual will be on the representatives from the 15 oil-rich nations. At the meeting, the delegates will discuss a range of issues regarding energy markets, agreeing on how much oil they will produce. The meetings are often closed to the press, but officials usually talk with journalists throughout the day, with a formal statement covering policy shifts and meeting objectives released at the end. 

On the domestic front, the Office for National Statistics will release the UK’s GDP data on Thursday. With analysts predicting that the outbreak of COVID-19 could have a material impact on the economy, predictions for the numbers do not look promising with many hoping that this may just be a transient phenomenon.  GDP in itself is one of the most useful gauges of economic health. Measuring the change in the total value of all goods and services produced by the economy, the statistics will show us how likely a recession could be in the coming quarters.

 

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.