Global equity markets started the week with a positive tone thanks to growing optimism that a number of major economies and US states will fully reopen soon, with both the Dow Jones and the S&P 500 ending yesterday around 1.5% higher. The FTSE-100 which closed yesterday up nearly 100 points, or 1.64%, is today, as we write, up just over 40 points, or 0.75%.
In the US, in addition to states like Georgia where businesses have already reopened, the New York Governor, Andrew Cuomo, announced plans to start lifting the lockdown restrictions and reopen parts of New York given the drop in coronavirus cases.
Obviously, how things actually work in reality is another question, as relaxations of the current lockdown restrictions are likely to be phased and measured, but it is very positive that everything finally appears to be moving in the right direction.
Elsewhere, the price of oil fell heavily again, with the price of a barrel of West Texas Intermediate (WTI) for delivery in June fell 24.56%, while Brent fell 6.76%.
While Brent oil for June settlement expires on Thursday (30 April 2020), it won’t be as dramatic as last week’s expiration of the May contract for WTI, which sent prices below $0 for the first time in history. Unlike WTI, Brent contracts are cash settled (i.e. they don’t convert into physical oil like WTI) and last week’s negative oil price was a result of WTI traders who hadn’t exited their oil positions and found themselves at risk of having to take delivery of the oil with little or no storage, which forced them to effectively pay to sell their oil.
Although historically a big fall in the oil price would suggest a bleak outlook for the global economy, this price slump reflects the excess supply caused by Saudi Arabia, and other members of OPEC, which significantly increased oil production to protect their market share, rather than the lower demand caused by the coronavirus – and as we have said before (please see here), we believe a low oil price will help to subsidise and spur economic growth just as the global economy needs it most, as it is the equivalent of a tax cut.
Investment Management Team