Major indices across the globe closed lower for the week, rounding off their worst quarterly performances since 2008. The stock market response to efforts to contain the global coronavirus pandemic has been sharp and rapid with most indices down between 20 to 30 percent in little more than a month. However, the magnitude of the economic impact of these efforts to contain the virus, through social distancing and business closures, is just starting to take shape as economic data becomes available.
In the U.S. jobless claims set another record high, doubling from the previous week, with over 6.6 million Americans applying for benefits, well above consensus expectations. Nonfarm payrolls fell by 701,000 in March. The decline brought an end to a record stretch of 113 consecutive months of job growth and lifted the unemployment rate to 4.4%, its highest level since 2017.
Manufacturing and services activity data from Europe and Japan was equally dire this week. Preliminary data from Europe suggests that the eurozone economy may contract at an annualised rate of about 10%.
Having successfully contained COVID-19 infection rates in China, investors eagerly awaited Chinese Purchasing Managers' Index (PMI) data this week. Data was strong, with the Caixin/Markit manufacturing PMI Index bouncing back into expansion mode, rising from a record low of 40.3 to 50.1 in March (50 and above indicates expansion). Other high frequency data including electricity production, road transport, and home sales, have also returned to their normal ranges. Chinese companies continue to increase their operational levels as quarantines and travel restrictions ease. Among major industrial firms, 98.6% had resumed operations, according to a Xinhua report.
Europe's three worst-hit countries - Italy, Spain and France showed some encouraging trends this week. In Italy, the number of new cases declined whilst intensive care admissions in Spain and France slowed. This comes after country lockdowns begin to show signs of containing the virus. Germany extended its lockdown until April 19, and Italy prolonged its lockdown until April 13. In the UK, Deputy Chief Medical Officer Jenny Harries said that lockdown measures could last for up to six months. Sadly though, inflection rates in the U.S. continue to increase with more than 100,000 cases confirmed in New York.
Global equities were once again softer this week with U.S. and European markets down between 2 to 3 percent. The Japanese Nikkei was relatively worse hit, ending the week down -8.09% whilst China’s Shanghai Composite Index continues to outperform world markets, down -0.30% for the week.
Brent crude oil extended its “rollercoaster” ride, rebounding +38.99% this week after President Trump tweeted that he expects Saudi Arabia and Russia to cut production. The rand lost further ground against developed market currencies, following last Friday’s downgrade by Moody’s, trading at R19.00 to the U.S. Dollar by this Friday market close.
Market Moves of the Week
In other local news, Fitch Ratings Agency also downgraded South Africa further into junk status. While the Fitch move may be less important than that of Moody’s last week, which put SA into junk, it reinforces the challenging environment South Africa finds itself in.
Despite ratings agency downgrades our local market “bucked” the trend, with all three of its broad sectors rallying. For the week, the JSE All Share Index ended up +3.85%, with industrials (+4.42%), financials (+1.28%) and resources (+5.20%) all stronger.
Chart of the Week
Following on from the previous week’s record 3.3 million filings, jobless claims roughly doubled from the previous week, with over 6.6 million Americans applying for benefits, well above even pessimistic consensus expectations. In addition, nonfarm payrolls, fell by 701,000 in March, about seven times worse than consensus.
To all those who have been affected by this unprecedented event we wish them good health and a speedy recovery. Please remember to regularly and thoroughly clean your hands with soap and water. Stay home if you feel unwell. If you have a fever, cough and difficulty breathing, seek medical attention. We all have an important role to play in containing and stopping the spread of the coronavirus!
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