Weekly investment update

The European Commission put forward its roadmap to phase-out containment measures based on a decline in the number of cases, sufficient capacity in health systems, and appropriate monitoring. President Trump, meanwhile, announced that 29 states may reopen soon, following a three phase process, as long as a set of indicators were met e.g. a decline in cases for at least two weeks.

There was also some promising news of a potential treatment. Although it is still early days, the pharmaceutical company Gilead tested a drug on 125 patients in Chicago with severe COVID-19 symptoms, which led to all but two patients being discharged. This is important as an effective treatment would save lives and reduce the length of the economic shutdown – the effects of which are clearly seen in company earnings releases, with US banks in particular painting a negative picture through lower profits and increased loan provisions. Some filings, however, show some companies bucking the trend.

The focus again was on weekly filing for US unemployment benefits, with the latest claims increasing by 5.2 million in the week to 11 April, bringing the total of initial claims in the last four weeks to over 22 million – well over 10% of the whole US workforce. US retail sales fell by -8.7% month-on-month in March, far exceeding the previous worst decline (-3.9%) in November 2008. China’s Q1 GDP fell -6.8% year-on-year, worse than the consensus figure of -6.0%, and China’s first economic contraction in over 40 years. Despite the OPEC+ production cuts, oil prices fell again last week as demand for oil dropped more than supply. On Monday 20 April, they even dipped into negative territory in some very specific categories (West Texas Intermediary for immediate delivery) for the first time in history. However, oil price futures are materially above current spot levels, which have also been driven lower as oil storage capacity rapidly disappears.

Within equities, the more defensive sectors outperformed cyclicals, with healthcare and consumer staples continuing to do well versus the weakest areas of financials, industrials and energy.

More broadly, larger companies, as well as growth stocks, that are deemed high quality and low volatility have continued to outperform smaller companies that are seen as low quality and high volatility, as well as value shares. Clearly, and not surprisingly, investors are still favouring companies that can better cope with the economic downturn, e.g. better access to capital markets, and have stronger balance sheets.

Turning to bonds, most areas made progress last week, with the exception of emerging market debt. With both treasuries and credit having had a good week, the market is clearly saying there is still plenty to worry about, even if risk assets have been having a better time of late, while the US credit market is being helped by the fact the Federal Reserve has the power to buy corporate bonds through quantitative easing.