Markets and Key Events
Wakeup call as US equities plunge by almost 6%
The week began with the US equity market erasing all of its losses for the year, having risen by over 44% since the March low, following an unexpectedly strong US jobs report at the end of last week. However, doubts crept in as the Federal Reserve forecast a much weaker recovery than that priced in by markets and pledged to keep interest rates close to zero at least until the end of 2022. Market concerns were further exacerbated by a steady increase in the rate of coronavirus infections in those US states that had loosened their lockdowns early, predominantly in the South and the West of the country. This culminated in a sharp selloff in US and European equities on Thursday, as US equities fell by 5.9% on the day, with technology stocks falling by 5.3%. However, by Friday, European stocks had regained their poise and were back in positive territory and US equity futures are forecast to rise.
As of 12pm London time on Friday, US equities over the week had fallen 6.0%, whilst US technology stocks had remained relatively defensive, falling 3.3%. European equities were down 4.9%, with UK equities having fallen 5.3%. European equities, despite trailing the US, had up to this week benefitted from the global rally in equities, having recouped all but 10% of their losses since the start of the year. This recent setback takes them to a loss of 14.2% for the year to date, which is nonetheless much better than the 32.8% fall from the start of the year, recorded in March. Japanese equities fell 2.6%, Australian stocks lost 2.5%, whilst the emerging markets were down 0.9%, or 10.9% since the start of the year.
As the economic damage is revealed, the outlook remains unclear
It is only now, just as lockdowns are being eased globally, that investors are beginning to understand what damage has been done to economies worldwide, whilst the future recovery remains unclear, especially as social distancing rules remain in place.
UK recession wipes out 18 years of growth in two months
Data out of the UK showed that the economy had shrunk by 20.4% in April, following a fall of 5.8% in March, wiping out 18 years of growth in two months, and returning the economy to the same size it was in 2002. The services industry was a large contributor to this fall, with sectors such as air travel, travel agents and restaurants losing 90% of their output.
Eurozone industrial collapse exceeds the financial crisis
Eurozone industrial production fell by a record 17.1% in April, although slightly better than had been forecast. Over the past year, Eurozone industrial production has fallen by 28%, surpassing the fall of 21.3% in the year to April 2009 following the financial crisis.
OECD forecasts slower economic recovery
The OECD released its latest economic forecasts for the global economy, painting a much gloomier picture than most. Despite expecting a rapid initial recovery, they forecast living standards not returning to pre-pandemic levels for some time to come. They highlight the continuation of social distancing measures having a disproportionately negative impact on sectors such as entertainment. They forecast the UK to be the worst hit economy amongst developed nations, with an overall GDP contraction of 11.5% in the current year, followed by a rise of 9% in 2021. This compares to contraction of 7.3% and 9.1% in the US and the Eurozone respectively, following by a rise of 4.1% and 6.5% in 2021.
Oil price comes under pressure following the release of US inventory data
The oil price, having risen by almost 120% since its low point this year, came under pressure this week after US data showed crude inventories rising to a record high. Brent crude fell by over 10%, before recovering some of the losses on Friday, currently trading at $38.8 a barrel, whilst US WTI (West Texas Intermediate) is now trading at $36.5 a barrel.
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