Global Markets Update Monday 27 April 2020

Posted on 27 Apr 2020

 

A Chinese trial of remdesivir, a drug made by Gilead Sciences that had been touted as a possible treatment for COVID-19, showed the treatment did not improve the condition of patients or reduce the pathogen’s presence in the bloodstream, according to draft documents published accidentally by the World Health Organisation. 

Global trade fell 2.6% in February compared with the same month the previous year, the fastest pace of decline since the financial crisis. Compared with January, global trade fell 1.5%, the second consecutive contraction this year as global trade volumes had already been slowing as a result of last year’s trade war between the US and China.

Global Market Update

UK
The FTSE 100 eased 0.6% over the week. Housebuilders bounced after Taylor Wimpey said its sites would re-open from 4 May and Vistry Group said it aimed to restart on 27 April.
Prime Minister Boris Johnson will return to work on 27 April, after taking time off to recover from COVID-19. 
The Treasury quadrupled its borrowing plans over the next three months, indicating it would seek to raise £180bn from Gilt sales. 
The flash reading of the IHS Markit/Cips composite purchasing managers’ index plunged to 12.9 in April from 36 in March and the lowest level since records began in 1996. Activity in the UK’s dominant services sector plummeted to 12.3 from 34.5 in the previous month, setting a new low. Manufacturing activity dropped to 32.9 in April.
UK retail sales tumbled 5.1% over the month of March, the steepest drop on record.
UK inflation, as measured by the consumer price index, fell to 1.5% year on year in March, compared to 1.7% in February. Core inflation, which excludes energy, food and alcohol, fell from 1.7% to 1.6%. 

US
The S&P 500 dropped 2.6% over the week.
The US Congress passed a $484bn economic relief package for small businesses, hospitals and coronavirus testing. This is the US government’s fourth stimulus bill since the outbreak. 
US durable goods orders slumped 14.4% in March, the worst reading since 2014 due primarily due a plunge in orders for commercial aircraft. However, core capital goods orders only fell 0.2%, following a 0.9% decline in February.
More than 4m Americans filed for first-time unemployment benefits last week, taking the total in the five weeks since coronavirus lockdowns began to a record 26m and more than erasing the number of US jobs created since the 2008 financial crisis.

Europe 
The FTSEurofirst 300 lost 1.2% over the week.
Lockdown measures continued to be gradually eased across Europe: German carmakers resumed production at some factories and some of the country’s smaller shops have been allowed to reopen; France encouraged all businesses to be ready for a restart on 11 May; Italy's manufacturing industry will start reopening on 4 May; 
 Spain will allow greater freedom in outdoor exercise, particularly for children, from 2 May.
The European Central Bank has agreed to accept “fallen angel” bonds (those that have recently lost their investment-grade rating) as collateral until September 2021.
The flash estimate of the IHS Markit eurozone composite purchasing managers’ index sank to 13.5 in April, by far its lowest reading since records began in mid-1998 and compared to a reading of 29.7 in March. Services sector activity plunged to a new record low of 11.7 from 26.4, while manufacturing activity dropped to a record low of 33.6 from March’s 44.5.
The European Commission’s consumer confidence indicator for the EU fell 11.6 points to -22, its worst reading since 2009. The same reading for the eurozone dropped 11.1 points to -22.7.
The Ifo German business-climate index crashed to a record low of 74.3 in April, from a downwardly revised 85.9 in March.
The Zew survey of German economic sentiment rose by 77.7 points over the month of April to 28.2, compared to March’s record low of -42.3.  

Japan 
The Nikkei 225 fell 3.2% over the week.

Pacific Basin
South Korea unveiled a sharp increase in spending to deal with the fallout of the COVID-19 pandemic to almost $200bn, adding to $120bn in stimulus and support measures that had been previously announced.

Emerging Markets
Turkey’s central bank slashed its benchmark interest rate by 100bps to 8.75%, taking real rates further into negative territory. This is the eighth rate cut in a row and is expected to pile further pressure on the lira. The central bank said that inflation was likely to be lower than previously forecast in the months ahead due to the plunge in oil prices and a drop in demand because of the coronavirus crisis.

South Africa unveiled fiscal spending worth a tenth of the country’s output, including a first ever request for an IMF loan, to stir its economy from its pandemic lockdown and avert a looming hunger crisis.
Russia’s central bank cut interest rates by 50bos to 5.5% and suggested more rate cuts could follow, saying it had “completely revised its views on economic development and inflation for the next three years”.
India allowed the limited resumption of industrial activity to help alleviate a potential humanitarian crisis.

Bonds
The yield on the 10-year US Treasury bond closed the week at 0.60%, while the yield on the 10-year German Bund ended at -0.48%.
Italian bonds rallied after S&P maintained its BBB rating on Italian sovereign debt.
Argentina’s biggest bondholders rejected the government’s offer to restructure $83bn of foreign debt, increasing the chances that the country is headed for its ninth sovereign debt default.

Currencies

The Brazilian real hit a record low against the US dollar, amid concerns about the government’s handling of the pandemic and expectations of a central bank rate cut. The latest push lower came after the resignation of the justice minister.

Commodities
US oil prices turned negative for the first time in history as the evaporation of demand caused by the coronavirus pandemic left the world awash with oil and not enough storage capacity. West Texas Intermediate, the US benchmark, briefly traded as low as -$40.32 a barrel, although Brent crude remained in positive territory, but briefly traded below $20 a barrel for the first time in 18 years.

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