Global Markets Update Monday, 6 April 2020

Posted on 06 Apr 2020

Global equities lost initial gains to end the week slightly lower. In the first quarter of 2020, the MSCI All World index experienced the worst fall since the final quarter of 2008 with the global economy set for the sharpest setback since the Great Depression.

There were signs that the lockdown measures in Spain and Italy were starting to work, with daily COVID-19 fatalities decreasing towards the end of the week. However, daily numbers continued to rise in the UK and US. More worryingly, Japan and Singapore saw the numbers of new cases start to rise.

UK
The FTSE 100 fell 1.7% over the week. The index suffered its largest decline since 1987 in the first quarter of 2020.

The final estimate of the IHS Markit manufacturing purchasing managers index was revised lower from its initial estimate of 48.0, falling to a three-month low of 47.8 in March, compared to 51.7 in February. The final reading of the services sector index fell to 34.5 in March, down from 63.2 in February and fastest downturn in service sector output since the survey began in 1996.

The Bank of England warned the UK’s biggest banks to scrap their dividends and to consider not paying bonuses to staff.

Royal Dutch Shell secured a new $12bn credit facility, which boosted its available liquidity to more than $40bn, as it seeks to safeguard its dividend. 

US
The S&P 500 lost 2.1% over the week.

Non-farm payrolls fell 701,000 in March, compared to a rise of 275,000 in February. This was the first decline since September 2010 and the worst reading since March 2009 in the aftermath of the financial crisis, ending a 113-month streak of gains. The US unemployment rate rose to 4.4%, compared to 3.5% in February, and the largest monthly jump since 1975. However, with the survey for the numbers closing on 12 March, both metrics lagged the pace of job losses, with almost 10 million US citizens filing for jobless benefits in the last two weeks of the month.

The ISM non-manufacturing index eased to 52.5 in March from 57.3 in February. While this is the lowest reading since 2016, it still indicates the sector continues to expand, although this may be because of long supplier lead times. The manufacturing index fell to 49.1 in March, from 50.1 in February.

Carnival Corporation said it was looking to raise $6 billion through the issue of bonds to help it stay in business through the COVID-19 crisis. 

Global Market Update - 6th April 2020

Europe 
The FTSEurofirst 300 slid 0.3% over the week.

The eurozone composite purchasing managers’ index plunged to 29.7 in March from 51.6 in February. This is the lowest reading since the survey began 22 years’ ago. Manufacturing activity fell to 44.5 in March, from 49.2 in February, while services activity slumped to 26.4 in March, compared to 52.6 in February.

At a country level, Italy suffered the steepest declines, with its services PMI tumbling to 17.4 in March, while France saw services activity falling to 27.4 in March from 52.5 in February. In Germany, services activity fell from 52.5 in February to 31.7 in March, while in Spain the index dropped from 52.1 to 23.0.

The EU’s survey of business confidence tumbled from 103 to 94.8 in March, its steepest monthly decline on record.

Japan 
The Nikkei 225 plunged 8.1% over the week amid concerns that Japan faces a second wave of coronavirus infections.

The Jibun Bank purchasing managers’ index for the manufacturing sector fell to 44.8 in March, down from 47.8 in February.

The Bank of Japan’s closely watched Tankan index for large manufacturers also fell into negative territory, at minus 8 compared with the previous reading of zero.

Pacific Basin
China’s official manufacturing purchasing managers’ index rebounded to a stronger-than-expected reading of 52.0 in March, a sharp jump from a record low of 35.7 recorded in

February and indicating that the sector was expanding once more. Meanwhile, the Caixin-Markit purchasing managers' index of Chinese manufacturing activity rose to a better-than-expected reading of 50.1 in March, compared to February’s record low of 40.3.

Elsewhere in the region, purchasing managers’ indices of manufacturing activity tumbled: in South Korea, the PMI fell from 48.7 in February to 44.2 in March, the worst in 11 years., while the index hit all-time lows of 46.7 in Thailand, 39.7 in  the Philippines at 39.7, and 41.9 in Vietnam.
 
Emerging Markets
The central banks of Poland, Colombia, the Philippines, South Africa and Turkey have all started quantitative easing measures by buying government and private sector bonds on secondary markets, while the central banks of Brazil and the Czech Republic have asked for new laws to allow them to do so.

Bonds
The yield on the 10-year US Treasury bond closed the week at 0.57%, while the 10-year German ended at -0.44%.

US junk bond funds saw $5.9 billion in inflows in the past week, according to EPFR Global data. However, Moody's warned that the default rate for lower-quality, junk-rated issuers could exceed the levels seen in the 2008 financial crisis if the economic downturn extends into the second half of the year. 

Currencies
The South African rand hit a record low against the US dollar after Moody’s downgraded the country’s credit rating to junk status, citing the hit to economic growth from the coronavirus pandemic. Moody’s had been the last credit rating agency to still rate South African sovereign debt as investment grade after rivals S&P Global and Fitch Ratings removed their investment-grade ratings in 2017.

Commodities
Oil prices soared 50% in just one day after President Trump suggested he expects Russia and Saudi Arabia to announce huge cuts in oil production. Brent crude rose as high as $36 a barrel, from a low of around $22 a barrel. 

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