Week in Review: Lockdown

Quarantines have now been imposed in the United Kingdom, Australia, France, Germany, Switzerland, Austria and South Africa, among others.

Italians have now been quarantined for more than two weeks - and the pandemic's surge in the country finally appears to be slowing. To date the most new cases Italy has seen in a single day is just over 6,500. Since then the number has fallen day by day, and is now averaging just over 5,000 per day. The numbers began to fall 12 days after the country went into national quarantine, with travel restricted to only essential journeys and people confined to their homes. The death rate in Italy is also beginning to decline, but it's trajectory has already surpassed that seen in China.

China enforced lockdowns relatively early. It was only on January 7 the new strain of coronavirus - Covid-19 - was identified. Less than three weeks later Hubei province was under lockdown and the government was busy shutting down neighbouring provinces. China has announced it will finally be ending lockdown in Wuhan on April 8, a huge milestone for the country and a signal that the crisis - for them at least - is nearing its end. It took more than two months of extreme restrictions, including travel bans and quarantine zones, to achieve the level of containment seen in Wuhan.

President Donald Trump on Friday signed the massive $2 trillion stimulus package into law during a signing ceremony in the Oval Office. The largest aid measure in American history will provide essential relief to American workers and an economy reeling from the coronavirus crisis. The plan provides direct payments to taxpayers, jobless benefits and a federally-guaranteed loan program ($367 billion) for small businesses who must pledge not to lay off their workers. The plan also includes loans for distressed companies from a $425 billion fund controlled by the Federal Reserve. An additional $75 billion would be available for industry-specific loans, including to airlines and hotels.

On Thursday, the US released weekly jobless claims figures showing a historic 3.3 million–person jump in the number of people applying for first-time unemployment benefits. Prior to the crisis, jobless claims were averaging around 220,000 a week.

Fiscal packages were also unveiled in Europe, Australia and Singapore.

During the week the U.S. Federal Reserve greatly expanded its support programs (increasing market liquidity), announcing unlimited purchases of Treasuries and agency mortgage-backed securities. The European Central Bank also substantially expanded the pool of assets that it can buy.

Stocks rebounded from three-year lows, as investors appeared encouraged by further aggressive monetary policy actions and the passage of an unprecedented level of fiscal stimulus. The S&P 500 Index experienced its largest daily rally since October 2008, with all the major U.S. equity indexes surging by around 9% to 11%. By the close of business on Thursday, the Dow had marked its best three-day stretch since 1931.

For the week, global equity markets recorded one of their strongest weeks in 11 years. In the U.S., the Dow Jones (+12.84%), S&P 500 (+10.26%) and Nasdaq (+9.05%) Indices were all strongly up over the week. Similarly, the Euro Stoxx 50 (+7.07%), FTSE 100 (+6.16%) and Nikkei 225 (+17.14%) sharply higher with the Shanghai Composite Index (+0.97%) moderately higher over the week.

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Market Moves of the Week

The JSE ended a run of three consecutive gains on Friday as investors waited so see whether SA would lose its last remaining investment-grade credit rating. The JSE all share dropped 4.66% to 42,946.83 points. The all share did, however, gain 6.64% for the week as global stimulus packages lifted market sentiment earlier in the week.

Late on Friday night Moody’s downgraded South Africa to junk status, dropping SA’s rating to Ba1, with the outlook remaining negative, bringing it in line with peer agencies Fitch and S&P Global. The move was expected in the face of SA’s poor GDP growth performance and fragile fiscal position, even before the onset of the pandemic.

Moody’s said that SA’s debt burden will rise over the next five years “under any plausible economic and fiscal scenario”, estimating that the debt burden will reach 91% of GDP by 2023, including the guarantees to state-owned enterprises — up from 69% at end of 2019. It is expecting the government deficit to widen to about 8.5% of GDP in 2020, higher than the National Treasury’s estimate of 6.8%.

The downgrade will force SA from important global bond indices, tracked by global institutional investors, such as the FTSE World Government Bond Index. Though the downgrade has been viewed by some analysts as priced in by markets, suggesting that capital outflows from SA could be limited. Non-residents currently hold approximately 37%, or R800bn, of the total domestic government bonds, according to the Treasury.

Earlier in the week the SA Reserve Bank introduced additional measures to manage liquidity, including the purchase of government bonds on the secondary market.

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Chart of the Week

China enforced lockdowns relatively early while they grappled with the virus. Spain and Belgium did not lock down for 43 days after their first case, while the UK, Germany and France did not impose quarantines until the virus had been in those countries for more than 53 days, while Italy locked down faster than most in Europe- 39 days after the first case was identified. Asian countries like South Korea and Taiwan have been successful in combatting the virus by implementing early travel restrictions, aggressive testing and screening of contacts and strict quarantine rules. The region’s approach has been shaped by the traumatic memories of other recent epidemics — most notably SARS — which meant that governments were better prepared to react fast and forcefully and populations much more willing to co-operate.

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. We recommend investors should stay properly diversified across a variety of asset classes and that their financial plan supports their long-term goals, time horizon and tolerance for risk.

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[email protected].

The information contained herein as well as the individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of Carrick or any financial product. This communication is intended to be used for information purposes only by its designated recipients and is not an offer, recommendation or solicitation to transact. While it is based on information freely available to the public and from sources believed to be credible and reliable, Carrick Wealth makes no representation that it is accurate or complete or that any returns indicated will be achieved. Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning and integrated wealth management solutions. The Carrick corporate group is also licensed in Zimbabwe and Malawi, and holds three global licences in Mauritius.

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