Walking a tightrope
- Covid-19 cases appear to have peaked in the developed world.
- More countries starting to ease lockdown measures very gradually.
- IMF cuts global economic forecasts, suggesting worst decline since Great Depression of the 1930’s.
- US jobless claims surge above 25million.
- Central bankers have our back with further measures anticipated from the Federal Reserve.
- China stepping up stimulus and central bank cuts key interest rate.
- President Trump blames China for virus outbreak and warns of consequences.
- PM Boris Johnson returns to work to communicate lockdown exit strategy.
- Covid-19 lockdown oil glut despite OPEC+ production cuts.
April saw a much-welcomed and pronounced bounce in stock markets as sentiment recovered from the panic seen in March. There were encouraging developments around the early easing of some lockdowns and potential treatment for covid-19, as well as further stimulus. This helped reduce anxiety levels and provide some reassurance over the future. Nevertheless, economic data has been grim with the US shedding jobs at the fastest rate on record and fears over a ‘second wave’ remain.
All major equity regions moved higher. Oil remained extremely volatile, as it tried to find a level given the ongoing oversupply and uncertainty as to when demand picks up, at one point the US benchmark WTI contract actually had a negative price.
Global economic data has unsurprisingly been dire. Never before have Governments deliberately shutdown economies, as they have in their response to coronavirus. In the US alone, some 30 million people were forced to file for unemployment benefits in just 6 weeks. The IMF has revised its global economic growth forecasts for 2020 and now expects the worst downturn since the Great Depression of the 1930’s.
Faced with the immense economic costs of the lockdowns and an improving virus trajectory, Governments have increasingly turned the focus towards the easing of lockdowns, with some already in the early stages. This looks set to be a very gradual process, reflecting both Government policy and the mind-set and willingness of the public to come out of lockdown.
In the UK, recent weeks have seen a number of announcements from companies such as B&Q and McDonald’s, as well as a number of house builders and builder merchants about restarting activities. Whilst very early days, this bodes well for a pickup in economic activity but also preparedness for when the Government does loosen measures.
Nevertheless, the key to the end of social distancing, and a return to some form of normality, still looks to be the development of a vaccine. The WHO has reported that there are more than 80 vaccines in development, six of which are at human trials stage. In addition to this, there has also been positive developments with regard to early stage trials on a potential treatment by US pharmaceuticals company Gilead and UK based AstraZeneca.
Stock markets have enjoyed a substantial rally from their March lows buoyed by the move toward easing lockdowns, treatment developments and the very substantial levels of stimulus that has been provided. Central banks have added trillions of Dollars to the financial system, as they move to unlimited quantitative easing. Governments have also typically stepped in with unprecedented levels of support including salary payment support, debt underwriting and mortgage payment relief.
We are pleased to see that markets have recovered since the end of March. We remain very alert to the risks posed by coronavirus and continue to closely monitor developments as we move into the next phase, but remain optimistic that March marked the low point for sentiment. Whilst the consequences of coronavirus will be with us for some time to come, we are encouraged by the recent global developments on both the trajectory of the virus and the early stage pharmaceutical developments. Central banks continue to be in ‘do whatever it takes’ mode flooding the system with liquidity and whilst this does not mean an end to volatility, it provides meaningful support to risk assets, such as equity markets
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