Week in Review: Markets Shrug Off Weak Data

Major indexes were mostly stronger this week, as investors weighed record downturns in economic data against hopes that progress in containing the coronavirus pandemic may soon result in the partial reopening of economies. Investors cheered early indications that coronavirus infection rates may be peaking in Europe and the U.S. along with announcements that governments are working on plans to reopen their economies.

In the U.S. retail sales fell 8.7% and factory output dropped the most since 1946. Initial jobless claims came in at 5.245 million this week as Americans continue to file for unemployment benefits. This brings the total number filings in the month since the pandemic was declared to 22 million, effectively erasing a decade worth of job creation.

Tuesday also brought the start of the U.S. earnings season, with some major banks reporting first-quarter earnings. JPMorgan Chase, Wells Fargo and Citigroup reported profit declines of 70%, 89% and 46% respectively. While bank earnings are feeling the pinch of lower lending margins due to falling interest rates and the prospect of rising loan defaults, analysts polled by FactSet expect other sectors to fare somewhat better, with overall earnings for the S&P 500 to decline by 14.5%.

In Europe, finance ministers agreed on a EUR 500 billion rescue package aimed at supporting businesses, workers, and sovereigns this week. The IMF expects that the eurozone economy will shrink by 7.5% this year before partly recovering and growing 4.7% next year.

China released its GDP data on Friday.  On an annual basis, Chinese GDP contracted by 6.8% in the first quarter, within a broad range of estimates. March retail sales fell 15.8% from a year ago, whilst industrial production rebounded sharply, in line with other high frequency data suggesting that large industrial enterprises had been the first to restart and recover activity levels after the coronavirus lockdown ended.

For the week, U.S. and Asian markets were strong with the Dow Jones (+2.21%), S&P 500 (+3.04%), Nasdaq (+6.09%), Nikkei (+2.05%) and Shanghai Composite Index (+1.50%) all comfortably in positive territory. European markets were mildly weaker with the Euro Stoxx 50 (-0.16%) and FTSE 100 Index (-0.95%) both negative.

Gold closed at its highest level since 2012 at $1,768.90 intraweek, but subsequently gave up some of these gains to close the week down -3.32%. Brent crude oil ended the week down -10.94% after the recently announced oil cuts by OPEC+ and non-OPEC members was not considered enough to offset the severe degradation in oil demand. Global oil storage is already more than 70% filled and at risk of rising even more as additional barrels may require storage in the second quarter.

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Market Moves of the Week

The South Africa Reserve Bank (SARB) cut the repo rate by a further 100 basis points to 4.25%. The bank does however see growth recovering gradually, to 2.1% in 2021 and 2.7% in 2022, once global demand normalises. It added that falling inflation gave it room to cut rates to boost demand.

South African Airways (SAA) was denied further funding from government this week. The airline’s administrators, who were put in charge in December, were told by the state to instead source its 10-billion-rand cash requirement from other available resources. Liquidation of SAA is now highly likely.

Local equities had another strong week with the JSE All Share Index up +2.34%, led higher by the industrials (+4.25%) and resources (+3.86) sectors. The financial (-5.30%) sector was the outlier, ending the week in negative territory.

Market Moves for the Week - 19 April 2020
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Chart of the Week

The all-important first quarter Chinese GDP growth data was released on Friday, providing investors with a consolidated view of the impact of COVID-19 on the Chinese economy. After three decades of maintaining annual growth above 6%, Chinese GDP shrank by 6.8% in comparison with the first quarter of last year.

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.

Chart of the Week - 19 April 2020

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