Market Update – 20th March 2020.

The latest policy announcements from around the world has calmed markets and allowed some of the recent indiscriminate sell-off to be reversed.  Today (20 March 2020), as we write, the FTSE-100 is up 150 points at 5302.

Donald Trump said that in addition to helping the car manufacturing industry deal with the negative effects of the coronavirus outbreak, he would support the US government taking equity stakes in companies that receive coronavirus-related state aid.

No doubt this was prompted by US jobless claims which jumped by 70,000 to 281,000 in the week ended 14 March 2020, which suggests to us that there will be a tsunami of claims for this week (ending 21 March 2020 – which will be reported on Thursday 26 March 2020) – in fact a surge above the previous record high of 665,000 claims recorded in March 2009 thanks to the financial crisis looks like a fait accompli.

Additionally, oil prices have recovered after Donald Trump said he would get involved in the oil-price war between Russia and Saudi Arabia when it was “appropriate”.  A barrel of Brent is now trading back above $28 having traded below $24 on Wednesday (18 March 2020).

In the UK, the BoE cut interest rates by 0.15% to 0.1% (a record low) and added £200bn to its QE program (taking it to £645bn).

These actions show that governments and central banks are now finally taking the necessary steps to catch up with the curve.

However, it is premature to suggest that we are fully out of the woods.  With the coronavirus outbreak still developing and evidence of economic damage continuing to rise, companies need cash, as do those people that may suddenly lose their income.

Nevertheless, there are plenty of reasons to be optimistic:  we believe governments and central banks will shortly get ahead of the curve with some additional out-of-the-box stimulus measures – and with global equity markets appearing to be pricing in the worst case scenarios for the severity of the economic downturn and its impact on employment and company profitability, sentiment could quickly and decisively shift back to ‘risk-on’, enabling global equity markets to decisively start recovering.

Investment Management Team