Market Update – 1st April 2020.

A miserable month (and first quarter of 2020) is thankfully finally over.  Global equity markets had been relatively stable for the first seven weeks of the year, but that all changed towards the end of February when the coronavirus outbreak started to spread across the world and economies were effectively shut down wherever it appeared.

Consequently, many equity markets are now in ‘bear’ territory, meaning that they have fallen in excess of 20%.  For example, on Wall Street, the Dow Jones is down 23.2% since the start of the year (its worst quarterly performance since 1987) and is down over 25% from its peak in February.

In the UK, even though the FTSE-100 closed up 108 points yesterday, it ended the quarter down 24.8%.  Furthermore, this hides many of the brutal individual constituent moves, which thankfully we mostly avoided, such as: Carnival which is down 73.07%; International Consolidated Airlines (the parent company of British Airways) down 65.58%; Melrose – 61.89%; EasyJet – 59.92%; Centrica (British Gas) – 57.36%; ITV – 56.28%; RBS – 53.02%; and Rolls-Royce – 50.15%.

Unfortunately, the new month and quarter hasn’t started much better.  The FTSE-100 is, as we write, down another 210 points, or 3.7% after Donald Trump warned that a painful two weeks lie ahead.

Adding to today’s negativity is news that the UK banks have agreed with the regulator to suspend dividends and share buy-backs for 2020, coupled with UK PMI (Purchasing Managers’ Index) data, which fell to a reading of 47.8 from 51.7.  As we explained yesterday, 50 is the line separating expansion and contraction – so a reading below 50 signals the UK economy is contracting.  Also the reading for new orders fell to 43.9 from 51.9 in February – its lowest reading since July 2012, which will undoubtedly impact employment and supply chains.

While disappointing, for all intents and purposes this number is meaningless, as it simply confirms something that everybody already knew – i.e. that the UK economy has hit a brick wall thanks to the coronavirus lockdown and containment measures.

As we have previously said, what is important is the fact that the lockdowns appear to be reducing coronavirus spread and related deaths.  As such we should soon be at the economic trough and given the aggressive stimulus measures that governments and central banks have provided, we believe that global equity markets and the global economy will start to recover.

Investment Management Team