It has been a volatile start to the week, on Monday most global equity markets continued last week’s slide, on concerns around coronavirus infection rates. Compounding Monday’s falls was news that OPEC+ had reached an agreement to raise oil production, as we speculated in our last weekly market summary (please see here), which led to falls in oil prices. Tuesday however, saw equity markets and oil prices rebound and recover some lost ground.
Equity market volatility is likely to remain elevated in the short term, as we enter the summer months and market volumes decline as investors utilise accrued holidays. With vaccines reaching more and more people, it is allowing economies to reopen and lockdown restrictions to be relaxed; consequently people are traveling more which has recently bolstered the oil price but also seen a pick-up in coronavirus infection rates.
Demand for oil is expected to continue to climb through the summer months and the supply response from OPEC+ seems measured and appropriate, in order to prevent a supply deficit in the coming months as economies continue to reopen.
Whilst we are not complacent, and the coronavirus remains a concern, it is very unlikely that it will result in another shock fall in economic activity, like that experienced in the early days of the pandemic. Simply because we have had time to adapt, many companies have adopted new working practices whilst precautions appear effective at limiting the impact on many aspects of life. However, vaccines still need to reach many more people and consequently, it will still be some time before economic activity can fully resume but in the meantime, bouts of market volatility can present opportunities for long term investors.
Still to come this week we have; UK retail sales; PMI data from several regions; US housing data and an update on monetary policy from the ECB.
Peter Quayle, Fund Manager