Global Markets Update Monday, 20 April 2020

Posted on 21 Apr 2020

The IMF warned of the worst global economic outlook since the Great Depression, with output losses this year expected to far exceed those that followed the financial crisis of 2008.

Global Market Update

UK
The FTSE 100 fell 1.0% over the week.

The UK government extended the lockdown by 3 weeks and came under growing pressure to reveal its exit plans from the current situation. 

The governor of the Bank of England backed forecasts that suggested that the UK economy had plunged 35% since the lockdown started.  

US
The S&P 500 gained 1.9% over the week. The index is now in bull market territory, having rebounded well over 20% compared to its nadir in mid-March.

Jobless claims continued to rise, with 5.2 million claims filed during the week, although this has slowed from the 6.6 million submitted the week before. Since the lockdowns began in March, jobless claims have risen by 22 million.

US retail sales slumped 8.7% over the month of March. This is the steepest monthly drop since records started in 1992.

Industrial production plunged fell 5.4% over the month of March, the worst monthly since 1946.

The Empire State manufacturing survey fell to minus 78.2 in April, far worse than the previous record low of minus 34.3 reached in February 2009 during the world financial crisis. 

The National Association of Home Builders’ housing market sentiment index posted its biggest ever monthly decline, falling from 72 in March to 30 in April. The data is at its lowest level since June 2012.

As the first-quarter earnings season started, JPMorgan Chase set the tone for banks, saying profits had fallen 69% in the first quarter, while Wells Fargo said net income has dropped almost 90%. 

Europe 
The FTSEurofirst 300 rose 0.6% over the week.

Spain and France extended their lockdowns until mid-May. However, Germany declared that the virus was under control and gradually started to lift its social distancing measures. It joins Denmark and Austria which have already started to slowly reverse their lockdown measures.

Japan 

The Nikkei 225 rose 2.0% over the week.

Pacific Basin
Chinese GDP shrank 6.8% in the first quarter of 2020 as the coronavirus pandemic ended an era of uninterrupted growth dating back to the 1970s.

China’s exports fell 3.5% year on year in March, an improvement after the steep falls recorded in January and February.
 

Emerging Markets
Investors reacted badly to Argentina’s long-awaited offer to restructure $83bn of its foreign debt: the Latin American nation is seeking to avoid defaulting on its payments for a ninth time. Investors were asked to accept a suspension on all debt payments for three years (near the end of President Alberto Fernández’s term) as well as a 62% “haircut” on interest payments worth almost $38bn.

Ecuador reached a deal to postpone its debt repayments until August.

A second rating agency, Moody’s, downgraded Mexican state-owned oil company Pemex to junk status.

The South African central bank cut interest rates by 100bps to 4.25%, the lowest level in the post-apartheid era. 
 
Bonds
The yield on the 10-year US Treasury closed the week at 0.61%, while the yield on the 10-year German Bund ended at -0.47%.

Investors poured a record $10.5bn into junk bond funds in the week ending Wednesday 15 April after the Federal Reserve shocked markets by pledging to support the debt.

However, retailers JCPenney and Neiman Marcus both missed interest payments on their high-yield bonds.

Companies rushed to issue debt to help them through the coronavirus crisis. Investment grade-rated hotel operator Marriott raised $1.6bn, while junk-rated manufacturer of aircraft parts Spirit AeroSystems raised $1.2bn. Carmaker Ford also announced plans to raised cash through issuing bonds.

Italy’s government announced it would issue a bond to help pay for the impact of the coronavirus crisis. The new “BTP Italia” bond will offer interest payments tied to Italy’s inflation rates and be sold in maturities ranging from four to eight years.

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