Global Markets Update Monday 4 May 2020

Posted on 04 May 2020

After strong gains in April, global stocks closed the week with relatively flat returns.

Many European countries either gradually eased lockdown measures or announced plans to do so within the next two weeks as fatalities continued to fall steadily. While the number of US cases appeared to plateau, Brazil and Russia saw new infections rise sharply.

Global Market Update

UK
The FTSE 100 rose 0.2% over the week.
Royal Dutch Shell cut its dividend for the first time since World War Two.

US
The S&P 500 closed April with the strongest monthly gain since 1987 but weakened on Friday following disappointing news from Amazon and Apple to end the week up 0.1%.
The Federal Reserve kept interest rates on hold but expanded its support measures to include $500bn in loans to help municipal bond markets. The move will allow smaller US cities and counties to access liquidity from the central bank.
US GDP contracted by 4.8% on an annualised basis in the first quarter of 2020. This is the fastest rate of decline since the 2008 financial crisis.
New US jobless claims rose by more than 3.8 million in the week to 30 April, taking the total seeking unemployment insurance since the start of the lockdown to more than 30 million. 
Amazon warned that the cost of hiring new workers and protecting them from the virus could leave it with an operating loss in the second quarter, while Apple withheld guidance for the current quarter.

Europe 
The FTSEurofirst 300 gained 2.0% over the week, although many bourses were shut on Friday.
Germany continued to gradually reopen its economy, and France announced plans to start doing so from 11 May. Spain began to ease lockdown restrictions.
The European Central Bank said it would lend money to banks at rates as low as minus 1% and launched a separate round of fresh lending. The ECB also warned that the eurozone economy could shrink between 5% and 12% this year because of COVID-19.
Eurozone GDP contracted by 3.8% over the first quarter of 2020, the largest drop on record and exceeding any quarterly decline during the 2008 financial crisis. Italy, France and Spain all experienced record declines in economic activity, falling 4.7%, 5.8% and 5.2%, respectively. 
The European Commission’s indicator of EU economic sentiment fell by 28.8 points to 65.8 in April. It is now near the lows reached at the height of the 2008 financial crisis.
Eurozone inflation fell from 0.7% in March to 0.4% in April. This is the lowest level of price growth for almost four years. Spain, Greece, Slovenia and Finland all reported falling prices.
The German government forecast that its economy would contract by 6.3% over 2020, before rebounding by 5.2% in 2021.
Data from Germany’s Federal Employment Agency showed that more than 10 million German workers have been registered to have part of their wages paid by the state, meaning almost a quarter of all German workers have been sent home or put on partial hours during the pandemic.
German retail sales fell 5.6% in March, the fastest decline in more than a decade.
Norway said it would cut oil production by 13%.

Japan 
The Nikkei 225 rallied 1.9% over the week.
The Bank of Japan kept interest rates on hold, but said it would buy an unlimited amount of government bonds and would quadruple its limit on corporate debt purchases.

Emerging Markets
The Mexican economy contracted by 1.6% over the first quarter of the year. So far AMLO, Mexico’s president, has resisted taking on debt to fund stimulus measures to help support the country through the COVID-19 crisis.

Bonds
The yield on the 10-year Treasury bond closed the week at 0.62%, while the 10-year German Bund yield ended at -0.59%.
US junk bond sales in April totalled $32 billion, the largest month of issuance in three years as cash-strapped companies tapped the market for cash. AMC Entertainment, Ford and Netflix were notable issuers.
Fitch downgraded Italy’s credit rating to a single notch above “junk”. The credit rating agency said the jump in debt levels resulting from the coronavirus crisis will increase doubts about the sustainability of the Italian government borrowings.