Market Update – 1st May 2020.

After initially trading sideways yesterday morning (30 April 2020), the FTSE-100 rapidly started to lose altitude mid-morning as economic data and company results continued to paint a dark picture.

Although the FTSE-100 ended the day 214 points lower, or 3.5%, about a quarter of this decline (51 points) was driven by the heavyweight, Royal Dutch Shell, which fell 11% after it announced it was reducing its dividend payment.

Given yesterday’s fall, the FTSE-100 is now down 22.58% since the last posted valuation, dated 5 January 2020.  Over the same period (5 January 2020 – 30 April 2020), a typical Cautious portfolio is down 8.52%, Balanced is down 13.73% and Adventurous client 13.01%.  This performance reflects the fact that we like to invest with clients’ long-term interests in mind by focusing on risk management and capital preservation.

Not only are our long-term growth portfolios diversified across a variety of asset classes (equities, fixed interest and cash) and geographies, such as Europe, Asia and the US, but we also currently have a slightly higher than normal level of cash (including liquidity funds) which helps to cushion investment performance on down days (such as yesterday and today – as we write the FTSE-100 is down 140 points or 2.38%), although it can also act as a drag on performance on up days.

Yesterday and today’s selloff reflects a return of caution.  Although, on the whole, sentiment has improved given the news that there is a potential coronavirus treatment, coupled with the fact that monetary and fiscal stimulus should significantly mitigate the economic weakness, there is still the obvious uncertainty over the duration of the lockdowns (while restrictions are being eased in a number of countries, lockdowns are effectively still in place) – and as we have been saying, it is better to focus on the duration of the lockdowns and the resulting economic decline rather than the depth, as only once the lockdowns have been lifted will the global economy start to recover.

Although we still believe that we will see a V-shaped recovery, we also fully expect that the extreme volatility, with large up-and-down equity market movements, will continue in the short-term.

Yesterday, as expected, the ECB left interest rates unchanged – but hopefully this will increase the pressure on EU governments to do more on the fiscal side.

Eurozone Q1 GDP contracted 3.8% – its biggest quarterly decline since the inception of the euro currency.  In addition to the French and Spanish Q1 GDP, which we reported yesterday (please see here), Italy’s Q1 GDP data showed a decline of ‘just’ 4.8% – as a result, we would not be at all surprised to see this revised sharply downwards in the coming weeks as the country started to introduce coronavirus lockdowns in February and the whole country was in lockdown on 9 march 2020.

Elsewhere, the US initial jobless claims showed another 3.8m Americans lost their jobs in the week ending 25 April 2020, taking the total over the past six weeks to 30m.  Although the number of claims continue to slow, there is a risk that the new jobless claims will start to change from being predominately restaurant and hotel workers, to manufacturing and engineering jobs – especially after Boeing this week announced it will cut 16,000 jobs.

The Fed’s preferred inflation metric, the Core PCE, continued to undershoot their 2% target, coming in at 1.7% for March, down from 1.8% in February, while US personal spending fell 7.5% in March – consumers account for about two-thirds of the US economy.

Looking ahead to today, much of Europe is closed for Labour Day, while in the US we have PMI data.

Investment Management Team