Weekly investment update

In terms of exit strategies, Europe’s largest economies began to chart ways out of lockdowns, with varying degrees of detail. Italy, for example – once the epicentre of the virus – has a timetable between 18 May and September for different developments. In the US, meanwhile, eight states have eased restrictions, allowing some businesses to reopen, while enforcing social distancing rules. For example, South Carolina’s retail stores are only allowed to operate at a 20% capacity.

In terms of treatments becoming available, markets responded well on Wednesday 29 April to the US trial of Gilead Science’s remdesivir, which saw patients recover quicker when taking the drug versus a placebo – an improvement on the Chinese trial, which found the drug to be ineffective. Given the US trial had four times as many patients as the China study, the Food and Drug Administration authorised its emergency use.

President Trump escalated tensions between the US and China at the tail end of last week. He threatened to impose new tariffs on China over its disclosure and handling of the coronavirus, rumours that the virus started in a Chinese lab, and his view that the country is trying to stop his re-election.

With regard to Q1 corporate earnings, Amazon warned that Q2 earnings could be anywhere between a US$1.5 billion profit or a US$1.5 billion loss. Alongside Apple’s decision to withhold guidance for the current quarter, this raised fresh concerns over the impact of the global health crisis on businesses.

Oil prices rose last week on the back of optimism that the reopening of some economies should gradually rejuvenate oil demand.

On the economic data front, the US’s weekly initial jobless claims came in above expectations, increasing by 3.8 million, and bringing the total number of initial claims in the last six weeks to over 30 million. Meanwhile, Q1 GDP saw a contraction of 1.2% quarter-on-quarter, although the US was one of the last economies to introduce containment measures and so the Q2 number will almost certainly be much worse.

The Eurozone economy eclipsed this figure, shrinking at its fastest rate on record, with a Q1 GDP number of -3.8%. Q2’s number should also be severely impacted.

China’s manufacturing purchasing managers’ indexes (PMIs) continued to show expansion – but only just – as they slipped to 50.8 from 52.0 a month earlier. Meanwhile, its new export orders plunged, indicating that restrictions to contain the outbreak in other countries are weighing on export orders and disrupting supply chains. ISM manufacturing PMIs from the US, UK and Japan showed contractions (i.e. came in below the 50 mark) at multi-year lows for April.

The Federal Reserve left rates unchanged on Wednesday 29 April and, as expected, did not propose any major initiatives, beyond expanding its US$600 billion main street lending programme. The European Central Bank also left rates unchanged, and announced plans to lend money to banks at rates as low as -1%. Both Powel and Lagarde referenced the large medium-term economic disruption due to the coronavirus and indicated that they are prepared to take additional action if necessary.

Up to last Thursday, the week saw the MSCI AC World up 3.5% in US dollar terms, and 1.5% in sterling terms, with the mood permeating to other asset classes. So credit, property securities and emerging market debt gained in value. On Friday 1 May, however, equity markets were down between 2% and 3%, wiping out the week’s gains.

Across April, the MSCI AC World rose 9.1% in sterling terms, despite the greatest ever deterioration in, and worse than predicted, economic numbers. Growth stocks continued to outpace their value counterparts. The difference between cyclicals and defensive sectors wasn’t as marked, with some defensives, such as communications services and healthcare outperforming, as did some cyclicals sectors, such as materials and energy, albeit off very low bases.