Apr 27 2020

Last week, reopening plans continued apace across the world, with a focus on Europe and the US. As shown in the timeline from Bank of America below, various US States and many European countries have provided signposts for lockdown relief:

Italian Prime Minister Giuseppe Conte said his country would ease restrictions from 4th May, whilst France and Spain also signalled further tentative moves to restart their economies after weeks of lockdowns. Like other countries’ plans, Italian construction and manufacturing firms will be first to reopen, with higher risk businesses such as bars and restaurants only permitted to trade from the beginning of June. Schools will not reopen until September.

On Sunday, Italy reported the fewest COVID-19 deaths over a 24-hour period for six weeks (260), France counted the fewest in a month and Spain’s increase was the smallest in more than a month, with the country having allowed construction and manufacturing businesses to reopen last week.

In the UK, Boris Johnson returned to work today (Monday 27th), with a caution-laced message of positivity, though again, in the background, manufacturers and building firms across the country are returning to work. Large (but orderly) queues formed at B&Q branches over the weekend, housebuilders have reopened construction sites, and carmakers Aston Martin and Jaguar Land Rover have put plans in place to restart factories at the beginning of May. McDonalds has also announced that it will be reopening its 1,350 UK and Irish outlets for deliveries and takeaways from the middle of next month.

This is all undoubtedly positive news, though the probable slow pace of reopening will mean that the eventual economic recovery will be fragile, drawn out and will require on-going, sustained support from governments and central banks. If needed, a reminder of this was the very weak Purchasing Managers Index (PMI) data released during the week. This is important ‘soft’ business survey data showed historic lows in manufacturing and particularly services businesses across much of the world.

In markets, risk assets had a slightly weaker week, consolidating some of the gains seen since the middle of March lows. In equities, the US outperformed again, rising by 0.03% (in Pound terms), as the Trump administration passed another $484 billion aid package. UK equities also performed relatively well despite the Pound being generally weaker over the course of the week. The FTSE 100 fell by 0.5%, and the FTSE 250 by 0.99%. This was in contrast to European and Japanese markets; German and Spanish equities fell by 2.11% and 3.2% respectively, while Japan’s Nikkei 225 index fell by 1.8%.

Precious metals continued to perform strongly, with the price of gold rising by 3.55% in Pounds, and that of silver by 1.35%. In fixed income, government bond returns were positive, with UK Gilts rising by 0.7%. High Yield and Emerging Market bonds fell slightly, in a reversal of last week’s fortunes.

As before, we remain cautious around the near-term prospects for risk assets given their recent strength and because the global economic reality is still only just becoming apparent. First quarter GDP data for many countries will be released over the next couple of weeks and is expected to be poor, perhaps shockingly so, with the kicker being that the second quarter could be even worse. However, our focus will remain on the speed and efficacy of countries’ reopening plans, as their success or failure is what will drive markets over the medium term.  

The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.

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Andrea Barker
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