Friday 27 March, 2020
Covid- 19 will run its course, whatever that course may be, and eventually economic activity will head back to normal. Monetary (interest rates) and Fiscal (tax and spend) support is already happening.
This may take longer to play out than expected - and in these uncertain times we expect further lows and the occasional bounce backs but as has already been widely reported and commented on - the worst short-term thing that any investor can do, is panic. A lot of money has been lost selling at the low and buying at the high.
We’ll be posting updates to this page every week or so summarising the market fluctuations and what they were a result of.
Equity markets can recover in as little as 6 months (which it will if Covid 19 turns out to be less of an issue) or 24 months (which is how long it took for markets to recover from the GFC).
Our initial updates focus is on the US – with US markets making up a large portion of global equity markets.
Monday 25th May
- Stock markets posted solid weekly gains as data releases revealed that the re-opening has been embraced at a pace faster than initially thought. Weekly mobility trends across geographies and May sentiment indicators (Fed manufacturing surveys, flash PMIs in the UK and the Eurozone) all improved.
- In the US specifically, real-time data points to continued gradual domestic recovery – mobility (driving) has now risen to 96% of January levels, nationwide personal travel is back to levels last recorded on late-March and credit card transactions are now flat on a year over year basis, after weeks of deep declines.
- U.S. politics recaptured news headlines in the wave of moving back to normalcy. The latest Fox News Poll finds voters trust Biden to do a better job than Trump on health care by 17 points, coronavirus by 9, and relations with China by 6 while Trump is trusted more on the economy by a 3-point margin.
- China’s annual National People’s Congress kicked off on Friday on a mixed bag of developments. On the positives, Chinese Premier Li reiterated that Beijing remains committed to implementing the phase-one trade deal with the US despite the coronavirus hit to the economy. However, the uncertainty of the growth outlook has made the country's government abandoning a hard GDP target for 2020.
Monday 11th May
- April was one of the worst-ever months for global economic growth but best-ever months for stock markets and the apparent disconnection continued last week.
- The S&P500 gained 3.5% week on week and the Nasdaq climbed back into the positive territory for YTD after a +6% week while data releases showed worse-than-expected US trade deficit and higher-than-expected unemployment rate.
- While there are multiple drivers for the current stock market optimism, Central Banks have certainly played one of the most crucial roles. Federal Reserve Chair Jerome Powell said in the FOMC press conference, “there are no limits to the easing policies and no hurry to withdraw the programs” helped some investors to draw a hypothesis that the stimulus and liquidity boom will outlast the health crisis.
- Key calendar events this week include, the RBNZ policy announcement Wednesday followed by the release of the annual NZ budget on Thursday, and US Retail Sales and Industrial Production for April on Friday.
Monday 4th May
- U.S. stock market indices edged lower last week as generally better-than-feared corporate earnings offset by the re-emergence of US-China trade tensions.
- Market-heavyweights reported above expected Q1 earnings but saw diverged price actions. Google and Facebook rallied on the back of resilient online advertising revenue and increased internet traffic while Amazon traded lower as delivery costs during the Covid-19 lockdown rose ahead of expectation and likely to erase the entire operating profit (~US$4bn) that was forecasted in Q2.
- The 1st quarter U.S. GDP saw a 4.8% (annualised) contraction driven by sharp declines in consumer spending (-7.6%) and business investment (-8.6%). With many of its emergency policies already pre-announced, the Federal Open Market Committee meeting on Wednesday reaffirmed that the US central bank will keep the interest rates at near-zero and continue to expand capabilities to lend directly to non-financial businesses.
- Oil prices stabilised over the week as the OPEC+ production cut kicked in on May 1st. The commodity prices saw further support as Norway (one of the world’s largest producer) announced to reduce its output for the first time in 18 years by 13% from June to December.
Tuesday 28th April
- U.S. stock markets took a breather after the sharp 2-week bounce back recovered over half of the March selloff and investors turned their focus on corporate results and the path toward economic normalisation. Hard-hit regions like New York state saw deceleration of Covid-19 case increases while US$484 billion worth of relief package to support small businesses, hospitals and testing were signed on Friday.
- To provide liquidity amidst economic lockdowns, central banks around the world continue to embark on massive asset purchases programs. Monetary authorities in the G7 countries purchased US$1.4 trillion of financial assets in March, with the pace showing no signs of slowing this month. In the week through April 15 the US Federal Reserve expanded its balance sheet by $41 billion per day.
- Oil futures fell briefly into the negative territory for the first time ever. While it is counter-intuitive to understand the notation of being paid to purchase oil, the financial instrument reflects the huge surplus in oil supply as a result of reduced economic activity and it is becoming costly to store them as tanks around the world are getting full.
- On the economic data front, U.S. jobless claims increased by 4.4 million last week (the lowest in the past 4 weeks), marking a total of 26 million job losses since the Covid-19 outbreak. Though there are bright spots such as Amazon announced to hire over 100,000 workers to meet the increased e-commerce demand.
Monday 20th April
- Global markets ended the week on better ground despite lower corporate earnings and worsening economic data. All three major US averages put together back-to-back weekly gains for the first time in 2 months and they are now up more than 25% from their March lows. At home, the NZX50 surged 8% in anticipation of a gradual opening of the economy.
- Economic data releases over the week showed no signs of bottoming and continued to suggest a meaningful recovery is contingent on successfully flattening the Covid-19 curve. US Retail Sales fell by a record 8.7% with double-digit declines in several sub-categories while US Industrial Production posted -5.4% in March, the largest month over month decline since 1946. Across the Pacific, China’s Q1 GDP growth was -6.8% annualised, marking the first contraction since the quarterly GDP figures were published.
- The first week of the reporting season saw around 40% of the firms fell below expectations. Corporate results will remain as the focus for the coming weeks as investors look to the management from industry bellwethers for any near-term catalysts. IBM, Coca-Cola and Netflix are due to report this week.
- Oil prices plunged below US$20 despite the agreement between OPEC+ members to cut daily production by 10 million barrels. The historically unreliable compliance and a bigger drop in demand forecasted by the International Energy Agency are likely to keep weighing on prices.
Tuesday 14th April
- Global share markets bounced back sharply led by the S&P500 which posted its best weekly gain in 45 years. Major indices in Europe also ripped higher as economies gearing up for a gradual unwinding of their lockdowns against the Covid-19 pandemic.
- While stock prices can be extremely forward-looking, economic data releases continue to show signs of deterioration. The US Small Business survey reported hiring plans at a 4-year low and the initial jobless claims were revised up for the third consecutive week to 6.87 million, well above the consensus expectations.
- The world's top producers agreed to slash global crude output to end the devastating price war. OPEC+ will cut 9.7 million barrels a day, just below the initial plan of 10 million. Mexico appeared to have won a diplomatic victory as it will only trim by 100,000 barrels, less than its pro-rated share. President Trump tweeted that the deal will "save hundreds of thousands of energy jobs" in the U.S. ahead of Texas oil regulators’ meeting to discuss domestic cuts.
- At home, the RBNZ expanded the size and scope to the quantitative easing (QE) program to further cushion the economic impact. Ability to purchase up to NZ$3 billion of Local Government Funding Agency over the next 12 months was added, taking the overall QE program to NZ$33 billion, around 10% of the annual GDP.
- Look ahead, quarterly corporate results reporting season kick off this week by large-cap banks. While interest margins appear to be less of a concern due to fast-declining central bank rates, consensus on credit quality and loan growth outlook are likely to be tested.
Friday 3rd April
- Stocks came back up today, led by the biggest one-day rally in history for oil, even after another massive spike in unemployment benefit claims in the U.S.
- Oil prices had just posted their worst first-quarter decline in history. This came as a result of a price war, which began in early March after the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) and other oil-producing countries led by Russia failed to reach an agreement on production cuts. The depression in the price of oil has also been accelerated by global demand being crushed by the Covid-19 outbreak.
- Overnight, President Donald Trump announced (via Twitter) that he spoke with Russian President Vladimir Putin and Saudi Crown Prince Mohammad Bin Salman, and that he expects both countries to cut production by up to 15 million barrels. This announcement was music to the ears of the oil market, sending U.S. crude oil prices up over 24%, the most significant one-day spike on record.
- This news was enough to drown out another massive increase in unemployment benefit claims in the U.S. The claims for the past week came in at 6.6 million, as Covid-19 continues to cripple their economy. This figure is double the previous record-breaking figure of 3.3 million last week.
Thursday 2nd April
- After the disheartening first-quarter record losses for market indices across the globe, stocks started the first day of the second quarter with deep losses. The low sentiment was intensified by U.S. cases reaching the 200,000 mark and as officials warned of much more pain ahead. The Dow, S&P and Nasdaq all dropped by 4.4%, their steepest single-day declines over the last two, very turbulent weeks.
Wednesday 1st April
- The first quarter of 2020 (January 1st – March 31st) has officially come to an end. Although stocks had a short rally near the end of the month, the Covid-19 pandemic stamped its mark and gave rise to new records for global stock markets.
- The Dow and S&P 500 posted their worst first-quarter performances ever, dropping 23.2% and 20%, respectively.
- The European Stoxx 600 index fell by 23.03%, the worst first quarter on record and ever so slightly missing out on the worst quarter overall trophy, which is held by a 23.33% loss in the third quarter of 2002. Spain and Italy’s own indices (the Ibex 35 and the FTSE MIB) were hit the hardest in the eurozone, both recording their worst quarters ever as the nations continue to be ravaged by Covid-19 cases and deaths.
- Britain’s leading FTSE 100 delivered its worst three-month performance since 1987, when UK stocks were pummelled on Black Monday.
Tuesday 31st March
- China released its manufacturing Purchasing Manager’s Index (PMI) today, a monthly figure based on a survey of how senior executives of manufacturing companies view economic conditions. PMI readings above 50 indicate expansion, while those below that level signal contraction.
- Chinese manufacturing PMI rose to 52 for March, which was much higher than expected and a sharp increase from February’s all-time-low of 35.7 while the country was under stringent lockdown. This reprieve doesn’t represent a full-blown turnaround, but rather it indicates a modest economic recovery and that workers are starting to return to factories.
Shortly following the release, European stocks rallied at their open. The European Stoxx 600 index gained 1.7%, France’s CAC 40 1.15% and the German DAX 2.08%. Britain’s FTSE 100 rose 1.8%.
Friday 27th March
- Stocks surged for a third straight day as investors shrugged off the release of the record-breaking unemployment claims, with some pundits having predicted the number to be closer to 4 million. Over the three-day period, which included the news of the historic economic relief package, the Dow Jones Industrial Average is up more than 20%. The S&P 500 also posted a three-day winning streak, rising 6.2%.
- The United States Senate finally passed the historic USD $2 trillion Covid-19 relief package overnight. Lawmakers approved the largest economic rescue package in U.S. history in a unanimous 96-0 vote after days of partisan disputes on how the money should be spent. The bill, which includes a one-time payment to individuals, stronger unemployment benefits, loans/grants to businesses and more health-care resources now heads to the House of Representatives tomorrow where it is expected to pass with a strong bipartisan vote.
- The crippling slowdown brought on by Covid-19 lockdown measures in the United States is beginning to show up in economic data. Americans displaced by the coronavirus crisis filed unemployment claims in record numbers last week, with the U.S. Labor Department this morning reporting a surge to 3.3 million claims. This number shatters the Global Financial Crisis peak of 665,000 in March 2009 and the previous all-time high of 695,000 in October 1982. Regardless, the stock marks continued to rally, as some pundits had predicted the number to be closer to 4 million and the Senate decision above.
Tuesday 24th March
Why the uplift today?
- US Congress are currently debating the details of a roughly US $2 trillion package support to stimulate the US economy. The Republicans and Democrats have been in stalemate over the details of the deal since Monday. However, this morning both sides have indicated they’ll reach a compromise very soon.
- This led to a major rebound/uplift in the US stock market - The Dow Jones Industrial Average soared more than 11%, logging its best day since 1933. The S&P 500 rallied 9.4% for its best day since October 2008, and the Nasdaq Composite surged 8.1% for its best day since March 13.
- Yesterday, the United States Federal Reserve (Fed) took a “whatever it takes” stance to stabilise the credit markets and cushion the economic contraction. The Fed will not only buy back an “infinite” amount of government-backed bonds, but also company issued bonds with an investment-grade rating. The scope of these actions is unprecedented, going far beyond what we witnessed during the Global Financial Crisis in 2008.
All funds managed by Kiwi Invest in the client portfolios are well diversified and liquid - built with the intention of being able to survive the immediate shocks and dips of market crises, and then thrive in any eventual subsequent upturn. Economies grow over time - and so do equity markets.
The information provided, or opinions expressed are of a general nature only and should not be construed, or relied on, as applicable to your personal financial situation. You should seek financial advice specific to your personal circumstances before making any investment decisions.