Global Markets Update – Monday 30 March 2020

Stockmarkets

Global stockmarkets rallied over the week, reassured by central bank pledges to do whatever it takes to help economies and by massive fiscal stimulus measures from governments. While Europe, particularly Italy, Spain and France, continued to see large numbers of daily fatalities, the epicentre of the virus crept west, with the US recording more than 100,000 confirmed cases.

Bargain hunters were also in evidence as the S&P 500’s earnings yield minus the 10-year Treasury yield rose to its highest level since the eurozone debt crisis of 2012. However, a growing number of companies are cutting or cancelling their dividends and/or share buybacks to help protect their balance sheets against coronavirus disruption. In the UK, dividends have dropped by the largest amount since the 2008 financial crisis, while payouts from US companies are set to drop for the first time since 2009.

UK

The FTSE 100 surged 6.2% over the week.

The flash estimate of the IHS Markit composite UK purchasing managers’ index tumbled to a record low of 37.1 in March, down from 53.0 in February. Services sector activity plunged to a record low of 35.7 in March, compared to 53.2 in February, while manufacturing fell to a three-month low of 48.0 in March.

The Chancellor unveiled support measures for the self-employed.

US

The S&P 500 jumped 10.1% over the week, propelled higher by rising optimism that a $2.2 trillion stimulus bill would be approved by both Republicans and Democrats in the US government.

The $2.2 trillion stimulus package includes one-off “helicopter money” cheques of up to $1,200 for individuals, an extra $600 a week in unemployment insurance for those without work, and a $450bn bailout fund for US businesses, states and cities. Shares in Boeing rebounded on the news.

The Federal Reserve pledged to buy government bonds in unlimited amounts and unveiled two new facilities that allow it to purchase corporate bonds, including new issues.

The flash IHS Markit composite purchasing managers’ index dropped to an 11-year low of 40.5 in March, compared to 49.6 in February. Manufacturing activity dropped to 49.2, from 50.7 in February, while activity in the services sector slumped to 39.1, from 49.4 in February.

A record 3.3 million people filed for unemployment benefits in the US in the week to 21 March 2002, far surpassing previous weekly record levels of just under 700,000.

The University of Michigan survey of consumer sentiment fell 11.9 points in March – the biggest one month drop since October 2008, at the height of the global financial crisis.

Europe

The FTSEurofirst 300 rallied 6.3% over the week.

The flash estimate of the IHS Markit eurozone composite purchasing managers’ index plunged to a record low of 31.4 in March, compared to 51.6 in February. Services sector activity plummeted to a record low of 28.4 in March from 52.6 in February, while manufacturing activity fell to 44.8, the lowest level since the 2008 financial crisis. In Germany, the composite PMI fell to an 11-year low of 37.2 in March, its biggest fall on record, while the equivalent reading fell to a record low 30.2 in March, also its biggest monthly drop: both readings were above 50 in February.

The flash estimate of the European Commission’s consumer confidence indicator for the eurozone declined by a record 5 points to -11.6 in March, the lowest level since 2014.

Berlin announced a €156bn supplementary budget, while anticipating a €33.5bn plunge in tax revenues this year. The government will raise €150bn in extra debt and has set up a €500bn bailout fund to take stakes in stricken companies. Meanwhile, Paris announced a €45bn aid package to help businesses and employees hit by the virus.

Japan

The Nikkei 225 rebounded 17.1% over the week.

Japan said it would postpone the Tokyo 2020 Olympic Games until 2021.

Pacific Basin

China announced it would begin relaxing restrictions on travel to and from Hubei, the central Chinese province where the COVID-19 outbreak started.

Chinese industrial profits plunged nearly 40% year on year in February.

Emerging Markets

India’s entire population of 1.4 billion people were put into a three-week lockdown. India’s finance minister announced a $23bn (£18.8bn) stimulus package, while the Reserve Bank of India cut interest rates by 75 basis points to 4.4% and made it unattractive for banks to deposit funds with the central bank so that they lend it instead.

Ecuador said it will fail to make coupon payments on three bonds which are due imminently but insisted it will pay up within the 30-day grace period.

Bonds

The yield on the 10-year US Treasury closed the week at 0.74%, while the yield on the 10-year German Bund closed at -0.48%.

The European Central Bank has given itself an unprecedented level of flexibility in its plan to buy €750 billion in additional bonds. The self-imposed limit to buy no more than a third of any country’s eligible bonds will not apply to these extra bonds, which has helped support debt issued by Italy and Spain

South Africa launched a bond-buying programme to ease the effects of the COVID-19 pandemic yields on 10-year South African sovereign debt have jumped from 9% at the start of March to over 12% as investors fled riskier debt. This follows similar measures by Colombia, Poland and the Philippines.

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