20th April 2020

IN THE NEWS

On Thursday, as anticipated, Foreign Secretary Dominic Raab, confirmed that lockdown measures would be extended for at least a further three weeks, outlining five specific points which the government would need to be satisfied of before considering it safe to adjust the measures:

• The NHS must be able to cope and provide sufficient care • Evidence showing a sustained and consistent fall in daily death rates • Reliable data showing the rate of infection is decreasing to manageable levels • Ensuring the supply of tests and Personal Protective Equipment (PPE) could meet future demand • Confidence any adjustments will not trigger a second peak.

He went on to justify the continuation of measures, “We’ve just come too far, we’ve lost too many loved ones, we’ve already sacrificed far too much to ease up now, especially when we’re beginning to see the evidence that our efforts are starting to pay off. And your efforts are paying off. There is light at the end of the tunnel.”

Despite the sombre news of the rising death toll, heart breaking losses for every family affected, there are some positive indicators. The number of people being hospitalised in certain parts of the country is decreasing, some flattening of the curve is evident as social distancing measures begin to feed through. The rate of infection in the community has reduced to under 1, meaning that, on average, each infected person is infecting less than one other person.

Furlough scheme extended

On Friday, Chancellor Rishi Sunak announced that the Coronavirus Job Retention Scheme would be available for another month until the end of June and would be extended again "if necessary". Under the scheme, the government covers 80% of workers' wages up to £2,500 per month. Mr Sunak commented, "With the extension of the coronavirus lockdown measures yesterday, it is the right decision to extend the furlough scheme for a month to the end of June to provide clarity.

A “colossal undertaking”

The government continues to face criticism for not providing enough PPE for healthcare workers. As supply challenges persist, thousands of items of PPE are scheduled to arrive in the UK, meanwhile Public Health England has revised guidelines on PPE use.

Alok Sharma, Business Secretary, led the Friday daily briefing and outlined the setting up of a Vaccine Taskforce to accelerate, expedite and coordinate efforts to research and produce a coronavirus vaccine, positioning the UK at the forefront of international efforts to fight the virus. He called producing a vaccine a “colossal undertaking” that would take many months.

Economy and markets

Global markets rallied on Friday as investors were encouraged by President Trump’s plans to reopen the US economy in a three-stage approach. Helping markets shrug off a 6.8% decline in Chinese GDP in Q1, sentiment was also buoyed by Boeing’s announcement it would resume production of commercial jets. Oil prices have been weak, despite the Organization of the Petroleum Exporting Countries and other producers announcing a deal to cut output.

Also on Friday, the International Monetary Fund updated its COVID-19 response ‘Assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, the Fund projects global growth in 2021 to rebound to 5.8%. This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit.’

Ray of sunshine

Capturing the hearts of the nation, 99-year-old veteran Captain Tom Moore, has raised over £25m for the NHS, by completing 100 laps of his garden before his 100th birthday. A truly heroic effort, the NHS has invited Captain Moore to be the guest of honour at the opening of the new Nightingale hospital in Harrogate to honour the Yorkshire native’s fundraising efforts.

THE MARKETS LAST WEEK

FTSE S&P Nikkei Euro Hang US 10 UK 10 Brent Gold Wheat GBP USD 100 500 225 Stoxx 50 Seng Yrs Yrs Crude +1.81% +1.80% +2.05% +1.72% +1.71% -0.08% -0.01% -13.39% -2.03% -5.30% -0.13%

GLOBAL: DEEP RECESSION FEARS CAUSE MARKET JITTERS

Positive sentiment in equity markets, spurred by a decreasing number of coronavirus cases within pandemic hotspots, is starting to sour due to the increasingly negative economic news flow last week.

In the US 5.2 million more Americans filed jobless claims. Unemployment levels are forecasted to hit between 15- 20 per cent this year - well above the last recession and could end up not too far off the Great depression levels. Retail sales for non-essential items fell off a cliff, while manufacturing levels hit lows not seen since the end of WW2. In Asia, the IMF warned that the region could see no growth breaking a sixty-year run, sending Asian equities into retreat.

The one pocket of positive equity movement last week was Europe as some countries like Germany eased restrictions returning to some semblance of normality.

OIL: CUTS MAY PROVE TOO LITTLE TOO LATE AS PRICES SLUMP

The bitter yet unsustainable oil price feud between Saudi Arabia and Russia has come to an end. The quarrel between the pair started after Russia walked out of an OPEC+ meeting earlier this year unable to agree on a coordinated supply cut; to arrest falling prices driven by ever growing US shale oil production. Instead, amidst the coronavirus pandemic, Saudi Arabia unexpectedly ramped up production putting the entire shale industry under pressure. Given both nations dependency on oil revenues there was always an expectation of when and not if a truce between the pair would be struck.

Last weekend, both parties and the wider OPEC+ cartel, as well as other net oil exporters like Norway and Brazil, agreed to large cuts totalling 9.7 million barrels a day over the next two months – roughly equivalent to 10 per cent of the global supply (compared to last year’s output). However, markets have reacted adversely after analysts queried whether the cuts will prove deep enough. In turn, oil prices dipped below the $20 a barrel mark.

BONDS: FALLEN ANGELS RESURRECTED BY THE FED

High yield (HY) bonds, often referred to as junk bonds due to their low credit ratings, had a record rally last week following a historic intervention from the US Federal Reserve (Fed). The Fed expanded its bond buying to include companies recently downgraded into junk territory (“fallen angels”) as well as investing in HY exchange-traded funds. While the Fed backing provided relief for hard hit sectors like retail, junk energy bonds continue to struggle as US shale companies grapple with falling oil prices. As default forecasts for the sector remains high, the cost of insuring the bonds remains expensive.

The Fed stimulus led to credit spreads (difference between the yield on corporate over Treasuries), which previously were at their widest since the Great Financial Crisis, narrowing sharply. Improved sentiment has also enabled those previously shut off from the debt raising market to issue new deals last week. Cinema operator Cinemark, retailer Burlington and tech company Sabre all tapped in last week to raise additional cash.

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