Weekly investment update

We had further movement in terms of lockdowns being lifted last week: in total, 21 US states have started to ease lockdown measures, however, as of Thursday 7 May, 10 of those did not meet the White House guidelines for reopening, raising concerns that some are opening too soon.

Meanwhile in the UK, Boris Johnson has set out a three-stage plan to get Britain back to work, abandoning his “stay at home” message and holding out the prospect that schools and parts of the economy could start to reopen before the summer, if certain milestones are met.

The friction between the US and China last week came on the back of the statement by Mike Pompeo that there was “a significant amount of evidence” that COVID-19 had started life in a Chinese lab. This claim was later rejected by Beijing, who instead accused the US of being the origin of the virus. To escalate things further, Trump also threatened to “terminate” the phase one deal, with China falling behind on agreed purchases of US goods. But on Thursday, all appeared to be well after an announcement indicated that trade talks between the two countries were still on track.

In terms of economic data, the weekly initial jobless claims came in at 3.2 million on Thursday 7 May, which was down from the 3.8 million the previous week. This now brings the total number of initial claims in the last seven weeks to 33.5 million. The huge level of rapid unemployment was confirmed by the US jobs report, out on Friday, where non-farm payroll employment fell by 20.5 million, and the unemployment rate jumped to 14.7%. It is also worth noting that the average hourly wage increased over the month, signalling that it was the lower paid individuals who have lost their jobs.

We had quite a few purchasing managers’ index (PMI) readings out last week. Eurozone construction and composite numbers were weak, falling to their lowest level since records began, while China’s services PMI stayed in contraction territory for the third straight month.

The Bank of England (BoE) met last week leaving rates unchanged and deciding not to launch any new stimulus packages. Its governor, Andrew Bailey, did however warn that GDP may fall as much as 30% in the first half of the year, and signalled that the bank could expand stimulus as soon as next month if needed. We also heard from Christine Lagarde of the European Central Bank (ECB), at the State of the Union Conference, urging the Eurozone to launch a joint fiscal stimulus and adding that it needed to be “swift, sizeable and symmetrical”.

For the first four days in May, equity markets were a little softer, before Thursday 7 and Friday 8 May, when these two days pushed markets marginally into positive territory.

As the Q1 earnings season continues, it would be fair to say there have been more positive surprises than negative ones. Of course, that partly reflects companies’ management steering analysts lower ahead of the results when they were all busy cutting forecasts, but the positive news has been especially true in the technology and healthcare sectors, which seem to be getting through the COVID-19 crisis very well, making them the two most resilient sectors year-to-date. This has also helped the US market outperform as it has a bigger weighting in these sectors than other regions.

Also, of course, it’s worth reflecting on the fact that these results are to the end of March and so were only partially affected by lockdowns. It will be the Q2 results when we really start to see the full impact of the collapse in activity.

Meanwhile, companies have been understandably reticent in talking about their prospects for the rest of the year, with many choosing not to give any guidance at all given how much uncertainty exists right now.

In terms of styles, at the highest level, cyclicals have generally been a bit weaker over the past few days, with defensives and stable earners extending their year-to-date outperformance. Growth stocks continue to outpace their value counterparts.

In fixed income, government bonds generally softened a little along with conventional investment grade credit, while high yield has had a slightly better time of it in the first few days of May.