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Week ending 15th May 2020.

18th May 2020

It has been a volatile week for global equity markets.  Although the overall tone was very much glass half empty, most equity markets headed into this weekend in a much more upbeat mood, as markets started to focus on the reopening of more countries and improving US consumer sentiment.

As you may have already read in our daily market updates, this week both Anthony Fauci, America’s infectious disease official and Jay Powell, the Fed Chair, were slightly downbeat:  Anthony Fauci said that the US would see an increase in coronavirus cases if the US economy reopens prematurely, while Jay Powell predicted the US unemployment rate won’t peak for another month or two.

Additionally, while much of this week’s data only confirmed that this is going to be the worst global economic contraction in recent memory, it is what happens once the lockdown restrictions are lifted which is of greater importance – and we got a flavour of this in today’s data (Friday 15 May 2020), which helped turn equity market sentiment around.

Although US retail sales data for April was appalling (falling 16.4%), it was pretty meaningless as it simply confirmed what we already know – sales fell as Americans stayed at home as the coronavirus outbreak closed shops, restaurants and car salesrooms – and in a sense today’s data can’t get much worse, meaning the only way is up!

However, of more interest was the University of Michigan Sentiment, as this gives us a taste of what we can look forward to as lockdowns start to ease – and consumer sentiment for May came in at 73.7.  Not only was this well above estimates of 65, it was actually 1.9 points higher than April’s 71.8 reading – i.e. consumers became more confident.

Looking at this coming week’s data, the unprecedented collapse in global economic activity caused by the coronavirus lockdowns mean much of the data will be useless as it is effectively out of date.

However, of most use and interest will be the weekly US jobless claims on Thursday (21 May 2020) – especially the continuing claims data, for clues if laid-off workers are being re-employed.

Additionally, we have minutes from the Fed’s last meeting on 29 April 2020; US housing starts; Eurozone consumer confidence; UK employment data (unemployment rate and weekly earnings); and UK retail sales; along with an alphabet of economic data including:  US, UK & Eurozone PMI; UK & Eurozone CPI; UK RPI; UK PPI; and Japanese Q1 GDP.

Investment Management Team

Monday 18th May 2020

Global equity markets finished last week on a positive note following improving US consumer sentiment data and this has followed through to this morning, helping the UK market rally strongly – and as we write, the FTSE-100 is up 125 points, or 2.15%.

Yesterday (Sunday 17 May 2020) Jay Powell, the Fed Chair, said that the US economy will start to recover during the second half of this year – although he did warn that it may take until the end of 2021 before the US economy is fully repaired.

Additionally, watching the UK news which showed people spilling onto the beaches and parks over the weekend, does suggest to us that there is plenty of pent-up demand that will drive the economic recovery once lockdown restrictions are completely lifted – hence why we have argued that it is best to focus on the likely duration of the economic decline rather than the depth.

Also over the weekend, the BoE’s Chief Economist, Andy Haldane said that negative interest rates were being debated.  We have long argued that the BoE needs to provide more stimulus, but thought that this would be limited to simply increasing the size of the central bank’s QE program.

Although negative interest rates will take the UK monetary policy to a place it has never been before, interest rates are already negative in the Eurozone, Denmark, Japan, Sweden and Switzerland – and the potential prospect of negative UK interest rates has weakened the pound this morning.

Investment Management Team

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