Despite stocks finishing mixed this week, global markets posted some of their best returns in decades during the month of April. A slowdown in new coronavirus cases and synchronized stimulus initiatives globally, improved sentiment from the March stock-market bottom. Volatility has also subsided from its recent highs but remains elevated.
Economic data continues to point to broad weakness in the global economic system and reporting companies are removing their full-year guidance due to uncertainty, but markets are discounting this and focusing on the upcoming reopening of economies.
U.S. GDP shrank -4.8% in the first quarter, its biggest contraction since 2008. Consumer confidence also eased to 86.9 from 120.0 in the prior month. Initial jobless claims totaled 3.8 million for the week, taking the total number of Americans seeking unemployment benefits to around 30 million since March 21, roughly 18.4% of the working age population. The Federal Reserve kept its key interest rate steady at its monetary policy meeting this week with Fed Chairman, Jerome Powell, stating that more stimulus is needed to ensure a robust economic recovery from the coronavirus crisis.
In Europe, GDP shrank by 3.5% for the first quarter. The European Central Bank (ECB) left its key deposit rate at a record low of -0.5% and reaffirmed its plan to buy more than €1 trillion of bonds. Meanwhile, Italy, Spain, France, Germany, and Greece gave more detailed plans on gradually reopening their economies.
Similarly, the Bank of Japan (BoJ) kept its key interest rate steady but expanded monetary stimulus and pledged to buy an unlimited amount of bonds to keep borrowing costs low. It announced that it would remove the ¥80 trillion annual quota for Japanese government bond purchases in favour of unlimited purchases as warranted.
Gilead’s antiviral drug Remdesivir was cleared by U.S. regulators for emergency use for Covid-19 patients, after showing positive trial results in treating Covid-19. The research is still preliminary and not peer-reviewed, but the excitement intensified after Dr. Anthony Fauci, the U.S. director of the National Institute of Allergy and Infectious Diseases, was interviewed on Wednesday, making it clear that the findings were significant because they showed that it was possible for a drug to block the virus’s progress.
For the week, European and Asian markets were stronger with the Euro Stoxx 50 (+4.23%), FTSE 100 Index (+0.19%), Nikkei (+1.86%) and Shanghai Composite Index (+1.84%) all ending the week in positive territory. U.S. markets were mildly weaker with the Dow Jones (-0.22%), S&P 500 (-0.21%) and Nasdaq (-0.34%) all negative. Oil price volatility continues to be extreme with Brent crude oil ending the week up +21.45%.
Market Moves of the Week
On Thursday, S&P Global Ratings downgraded South Africa’s sovereign debt deeper into junk bond territory, from BB to BB-, with a stable outlook.
Some 60 percent of recalled miners returned to work this week in preparation for the lifting of the Covid-19 lockdown. The mining sector is among the first to be partially reopened after the government-imposed lockdown began in March. Coal mines supplying Eskom were allowed to continue operating during the level 5 lockdown, but the new regulations allow coal and open cast mines to operate at 100% production capacity, and underground mines at 50%.
Local equities had another strong week with the JSE All Share Index up +1.63%, led higher by the financial (+6.82%) and industrial (+1.03%) sectors. The resource sector (+0.20%) was also marginally stronger.
Chart of the Week
Data released on Tuesday showed that the U.S. Conference Board Consumer Confidence Index deteriorated further in April, reflecting its worst outcome since 2014. Importantly though, the current print of 86.9 is barely below the average for the last 20 years. Given the horrors that roiled U.S. consumers last month, it’s impressive that they remain more confident than they were at any point in a six-year period starting early in 2008.
Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same - stay calm in making decisions that are aligned with your long-term goals, not current market conditions. In any market environment, we strongly believe that investors should stay properly diversified across a variety of asset classes and that clients financial plan supports their long-term goals, time horizon and tolerance for risk.
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